I may be a Fool, but I ain't stupid!
Written: Apr 03 '02 (Updated Apr 18 '02)
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Pros: Informative, offering news and research.
Cons: Message boards now are by paid subscription
The Bottom Line: Definitely the first stop for both novices and advanced pros doing investment research on the net. It teaches you how to buy stocks, not just which ones to buy.
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| eharri3's Full Review: Motley Fool |
The Motley Fool's Mission: To educate, enrich, and amuse.
Before you can really begin an in depth discussion of an investing site such as the Motley Fool, you have to address the very foundation upon which it is built: the investment philosophy it advocates.
The Motley Fool is founded on a basic idea: It shuns concepts like day-trading and cut-and-run profit taking in favor of the buy-and-hold stock strategy, but with a caveat. Your decisions must be based on sound, careful research. Some investors criticize the Motley Fool's support of the buy-and-hold strategy whenever the market makes sudden downward corrections, saying "See what happens when you buy and hold? The price goes back down and you loose!" They forget several important factors. The Fool does not mean buy,hold,and forget or buy without understanding. The Fool advocates that investors make decisions keeping in mind that shares in stock are shares of a business, and therefore in the long run the price of those shares will be affected by the health of that business. And so they advocate researching the finances and business model of a company through analysis of SEC filings, cash flows, balance sheets, and other hard data. They cite statistics and other evidence to show that jumping in and out of stocks on a day-to-day basis for a few cents' profit per share is a loosing proposition once Uncle Sam and Mr. Stockbroker have taken their share. And that is assuming that you guess or time the market with sufficient luck to make any profit at all, which isn't likely since so many random and uncontrollable forces affect stock prices in the short run. However, in the long run, sound business fundamentals sort out the winners from the losers, and this is where the Fool is focused. So what if every now and then while you hold a stock, it goes down a bit instead of going up. That's going to happen day to day because of investor emotion and current events. But if the business is sound, you could conceivably hold it for months, years, even decades and see exponential returns that make broker commissions and taxes less and less meaningful as time goes by.
That being said, it would also be useful to understand what you can and cannot expect from the Motley Fool.
What you can Expect
Information and Research
If you know a company's stock symbol, there's very little reason you'll ever have to leave the Fool to do research. You can find balance sheets, cash flow and income statements, and Security and Exchange Commission filings, as well as recent news.
As if that weren't enough, they go a step further and offer something most other sites do not. In their How to Value Stocks section, they have clear, concise descriptions of the most common methods used to evaluate stocks, the usefulness of each particular method for evaluating different types of companies, and how these methods can be combined in order to form as accurate a picture of a business' future prospects as is possible. Everything is there, from price/earnings/growth ratios to earnings, revenue, and cash-flow based valuation methods. There's math involved, but it's simple equations that are clearly described. It's basically a crash course in very basic accounting, and you have no business holding individual stock if you've never taken it, or one like it.
It is essential to be able to get a real picture of a company's financial health, and many of the big-time pros use some of the same standards and calculations to help them weed out junk stocks.
The Rule Breaker and Rule Maker portfolios provide genuine examples of diversified investment strategies based on different market sectors to give readers a sense of how different types of companies tend to perform on the stock market. The Rule Breaker portfolio consists of smaller and newer companies that are projected to grow and expand quickly over the next several years while providing exponential stock price increases. The Rule Maker strategy assembles strong, stable, larger corporations such as American Express and Intel that are purchased when price fluctuations put their stock at a discount compared to normal value, but which are expected to provide years or decades of relatively safe, steady but very gradual growth. Together, these portfolios show how big and small companies react to various market conditions differently. They also demonstrate that TMF has literally put its money where its mouth is, investing its own cash using the buy-and-hold style and then letting readers track their returns regularly.
In addition, no trades of any kind are made in either of these portfolios before justification for all investment decisions is stated in a clear, concise article posted on the site along with the rest of the daily news and stock market current events. This is to send the message that the fool is not going to use exclusive information or research to try to take profits and run before anyone else hears of impending trouble, or to pounce on an under-valued stock without fully informing the readership first. Just read the latest news on how Yahoo dropped 20 percent after the Fool decided to sell but before it could publicly announce its plans and put them into action. They ended up selling the stock right after a steep decline because an unexpectedly negative earnings report caused a drop in share value on the same day that they got around to announcing their plans in the weekly Rule Maker article. However, they still proceeded as planned with the sale and then explained the rationale behind it. All the while, they insisted that despite the possibility of steep losses incurred by waiting to get the news out at press time before pushing the sell button, they would not waver from their policy of not trading any stocks before transactions were publicly disclosed.
Feel like assessing individual stocks is too much work? Go to the index fund section and learn how to tie your profits to the average results of several dozen, hundred, or thousand of the strongest companies in the US without having to worry about sudden bankruptcies or other unexpected surprises that can happen when you go too long without checking up on current events and SEC filings for a company in your portfolio. As a Fool once said, "there's something positive about having someone ask you how the market did for the day and being able to say those 7 wonderful words, 'I don't know and I don't care!'"
The Fool is about educating people in how to properly manage their whole financial lives, not just stocks.
In addition to information on picking individual equities and a computer program that lets you monitor your own portfolio, you'll find information about how to buy a car, finance or refinance a home, pay for college, or get rid of debt. And it's all wrapped up with humorous insights and pleasant sarcasm.
What you cannot expect.
The Fool is not here to do your homework for you.
The fool does not advocate the purchase of individual equities. They caution repeatedly throughout the site, Mimmic us at your own risk! Do your own research! They highlight specific companies that look promising, but then they suggest you do your own further research and analysis before pushing the buy-button.
Another wise Foolish saying is "Give a man a fish, feed him for a day. Teach him how to fish, he'll eat forever." Above and beyond all else, the Fool advocates educating consumers to take control of their own finances, including the stock market and other areas, rather than spoon-feeding them with stock picks without teaching them the thought-process behind them. Unlike so many other investor sites, the fool wants to make you use your own head and analytical abilities.
The fool will not teach you how to enrich Uncle Sam and your brokerage.
As I said before, if you're into technical analysis or day-trading, you'll have to look elsewhere. There isn't much mention of these strategies, except in occasional articles that discredit them and on the Fool's day-trading message boards. They are not compatible with TMF's investment philosophy, so they don't get much attention.
OF course, the Fool is not perfect. One of the most disappointing things to me is the recent instatement of the subscription fee for the message boards. I understand that they did it to keep the company financially healthy, but it doesn't seem very Foolish to pay to use their message boards when I can put that thirty-dollars a year in a savings account or I-bonds and go to a free board. If you want to bounce ideas and suggestions around with other investors for free, you'll have to go elsewhere.
Also, you can get certain earnings and valuation ratios on CNBC that you can't find on the Fool. At TMF you get the price to earnings ratio, and that's just about it. For anything else such as price/revenue, price/book value, return on assets and capital, and other basic calculations, you'll have to either do it yourself or just go to CNBC and have it all laid out for you automatically. I understand the importance of doing your own research, but when you can get certain information without bothering with the basic grunt-work that's all the better.
Some people say that the Fool is only for beginners, and that it's inadequate for more advanced or experienced investors. I have to ask, why is that? Many make the mistaken assumption that the buy-an-hold strategy becomes less useful the more experienced you are at investing as you get a better feel for 'timing the market.' At some point they think once you've gotten the hang of things it's time to start day-trading and moving your money from place to place constantly.
But if timing the market is counter-productive and impossible to do with any consistent accuracy that can't be attributed to luck anyway, then why bother? What's the point of paying commissions, fees, and high short-term tax rates to get out of a stock at the first sign of a downward fluctuation and then get back in on the upward bounce when there's good reason to believe it'll be up considerably in 5 years regardless of how many times you jump in and out? Contrary to what others believe, I think investors of all experience levels can benefit from TMF. Among its most prosperous regular readers is Warren Buffet, one of the richest men in America and a firm believer that the best holding period for a quality stock is forever.
Many people dislike the Fool because it sends the last message that they want to hear when they want to get rich over night: That investing requires patience and hard work.
You may not agree with all aspects of the Fool's philosophy, and that's OK. I don't expect you to and neither do they. The value of the fool is the educational benefits that you really can't find in too many other places on the web. In an investment climate where most gurus are trying to spoon feed everyone stock picks without teaching them the logic behind them, finance sites often tend to gloss over the all-important but unglamorous numbers work because everyone wants to know tomorrow's winning stocks without doing the boring, labor-intensive research. The Motley Fool sends the important message that you can do just as good of a job as anyone, if not better, at managing your own money, and that investors must be willing to do detailed research and show patience and perserverance. Say what you will about their investment philosophy, but their emphasis on education and independent thought puts them head and shoulders above the most other financial web sites.
Recommended:
Yes
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Epinions.com ID:
eharri3
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Member: edward harris
Location: Philadelphia, Pa
Reviews written: 199
Trusted by: 83 members
About Me:
Anybody notice all these bugs always pop up right when it's time to distribute earnings?
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