Rejoice, investors.
In a victory for people power and common sense, the Australian Senate has today disallowed the federal government's watering down of important consumer protections for financial advice.
There have been too many financial scandals. Too many innocent victims of financial crime. Too much conflicted financial advice. Precious little truly independent financial advice.
Starting with an open letter to Tony Abbott, our own Scott Phillips led The Motley Fool's charge against the watering down of the previous government's Future of Financial Advice (known as 'FoFA').
This morning, Scott's doing cartwheels around the office. Like all of us here at The Motley Fool, he's as passionate as they come when it comes to putting consumers and customers first.
Like me, he'd like to thank you, our Foolish readers, for being part of this victory.
That said, dangers remain.
When it comes to financial products, I go by the simple motto…
If it looks too good to be true, it usually is.
Just ask investors in failed managed investment schemes like Timbercorp.
In a recent senate inquiry, The Age said investors described how they felt betrayed by the advisers who they trusted with their retirement savings — the inquiry heard some financial advisers earned $7 million in commissions.
It's an utter disgrace, but sadly, a common disgrace — Storm Financial, Opes Prime, Trio Capital and Westpoint Property Group resulted in more than $6 billion in losses and involved more than 120,000 people. All involved conflicted remuneration structures and high commissions as fundamental issues.
Here at The Motley Fool we have an Australian Financial Services Licence (AFSL No. 400691) to give general financial product advice in a number of areas, including securities.
It's a responsibility we take VERY seriously.
We don't take any advertising dollars from anyone — and believe me, we are regularly asked if we will accept the ad dollar.
We don't for two reasons….
1) Not only don't we have any conflicts of interest, we want to be seen as a truly independent voice. Our mission is simple — To Help The World Invest, Better.
2) Focus. The only payments we receive are when people subscribe to our stock picking newsletter services, like Motley Fool Share Advisor, for example. We want all our staff to be focused on giving readers and subscribers our best possible investment advice possible.
All that said, our business model and our AFSL does NOT guarantee our advice will be good advice.
We make mistakes, just like anyone. We have disclaimers, just like anyone. When it comes to investing in the stock market, nothing is guaranteed.
Heck, for all our optimism about the long-term benefits of investing in the stock market, a market crash could be just around the corner.
Of course, if we were to consistently get our advice, and our stock tips wrong, our business model would be in tatters.
People wouldn't subscribe to our newsletters in the first place, and they certainly wouldn't renew their subscriptions, a killer-blow for someone operating in our industry.
As of today, it's with great pride I look at the returns of all four of our subscription-only newsletter products and see them all soundly ahead of the market.
The average ASX stock tip in our flagship Motley Fool Share Advisor service is up over 52%, and that includes the inevitable losers.
Motley Fool Share Advisor — lead by myself and Scott Phillips — is soon to celebrate its third birthday.
From humble beginnings, when a few hundred Australian investors put their trust in The Motley Fool Australia, it has grown into one of the largest and most successful newsletter products in the country.
But our work is never done. Profit warnings lurk. Dividend cuts lie in wait. Under-performance is our greatest enemy.
In investing, never take anything for granted. Complacency and over-confidence have a nasty habit of biting you, just when you least expect it.
The same "if it looks too good to be true" advice holds for individual stocks as it does for failed managed investment schemes.
Stocks trading on a trailing dividend yield of 12% are usually too good to be true.
Stocks trading on a trailing P/E of 3 are usually too good to be true.
Stocks capitalised at millions of dollars yet with no realistic chance of ever making a profit, are usually too good to be true.
For every Liquefied Natural Gas Ltd (ASX: LNG) — the latest hot stock — there are many flame outs, including Lynas Corp (ASX: LYC), Maverick Drilling and Exploration Ltd (ASX: MAD), Arrium Limited (ASX: ARI) and Central Petroleum Limited (ASX: CTP).
Heck, although nothing like a total flame out, we did once tip Codan Limited (ASX: CDA) to our Motley Fool Share Advisor subscribers, later selling out at a 64% loss. I was one of those losers, having taken our own advice and bought the stock for my own portfolio.
And didn't we hear about it too. In case there was EVER any doubt, we know first-hand that subscribers HATE losing money.
They HATE it MUCH more than the thrill of making money. I know.
At a "Meet The Fools" event in Sydney, questions about Codan — still today by some distance the biggest ever loser on the Motley Fool Share Advisor scorecard — dominated to such an extent that we had NO questions about our biggest winner at the time, Corporate Travel Management (ASX: CTD).
That Sydney member event was almost exactly two years ago. In that time, the S&P/ASX 200 Index has gained 22%.
But Corporate Travel Management has gained a FURTHER 200%.– and it still remains a buy on the Motley Fool Share Advisor scorecard.
We feel bad that our members lost money on Codan. Very bad. It's by far the worst part of our jobs.
But it highlights yet another lesson in the world of stock market investing — cut your losers, run your winners.
Speaking of losers…
There's nothing worse than a flat to falling stock market.
And just when you thought today, finally, the ASX would get a break and follow Wall Street's lead higher, once again it goes into reverse.
And once again, we can blame it on mining stocks and the still plunging iron ore price.
The headline in The Sydney Morning Herald says it all…
"Small miner wipeout"
The red dirt now trades at around $US72 a tonne, its lowest level for five years. Iron ore has now fallen close to 50% this year, heading for its biggest annual drop since 2009.
In the face of the plunging iron ore price — caused by a combination of increased supply colliding with reduced demand out of China — you'd think it would be financial suicide to add even more capacity to an already over-supplied market.
Think again. The AFR reports mining giant Rio Tinto Limited (ASX: RIO) is "expected to pull the trigger on developing a massive new iron ore mine in the Pilbara."
Now admittedly the development of the mine won't be until 2018, when the iron ore price could be $US40 or $US140, but it does highlight three major downsides of mining stocks…
1) They can't control the underlying price of the commodity.
2) The commodity they mine depletes. You can only sell a tonne of iron or to China once, Unlike a product like insurance, for example, mining is NOT a repeat purchase business.
3) The capital intensive nature of mining. Developing new mines doesn't come cheap. Gina Rinehart's Roy Hill iron ore mine in the Pilbara is costing $10 billion to develop.
All of which might make you wonder why on earth would anyone own such stocks?
Regular readers of this free Motley Fool Take Stock email will know we've long warned investors off mining stocks — especially mining services and junior iron ore stocks.
Granted, that advice doesn't make you any money, and make us any friends if indeed you do own such stocks, but NOT losing money is just as good advice as making money.
Just ask those poor souls who were tricked into Timbercorp and the like.
