Morningstar Ratings and Research

Give me a few minutes and I'll explain what you can get from Morningstar if you're a long term investor with a value-oriented mindset.

What You Get From Morningstar

• Stock Analyst Reports - By far my favorite feature. I get access to independent, indepth, thoughtful analysis on more than 2000 individual companies, updated regularly. I've consulted various stock reports as part of online brokerage accounts, but the Morningstar reports are consistently of the best quality of any that I've reviewed.
• Morningstar Ratings - Morningstar ratings are based on one to five stars. The stars are based on the difference between a stock's current price and Morningstar's proprietary determination of a stock's "intrinsic value." The more undervalued a company is relative to Morningstar's calculation of "intrinsic value", the higher the rating. This is an important metric. I'd personally steer away from buying low quality companies just because they're extremely undervalued in the Morningstar universe. A better use of the rating system is to consult it in order to help you avoid paying too much for high quality companies. Or for valuation comparison purposes when you've already got your stock wish list fully filled out.
• Morningstar Stock Screener - When used correctly, stock screeners can be a valuable resource. You just have to remember that screeners are a starting point, not an ending point. And the premium Morningstar Stock Screener makes this process a whole lot easier by offering a number of pre-set screens with a definite value investing focus - Ben Graham Stocks, Warren Buffett Stocks, Cash Cows, Wealth Creators, and my favorite, Wide Moat Stocks.
• Economic Moat Investing - This is an old Graham-Buffett concept also known as durable competitive advantage. Buying and holding mediocre companies is a disastrous way to invest. In fact, the only way long term investing works is if you can identify and invest in those companies with long term durable competitive advantages. Morningstar ratings include three Economic Moat categories - Wide, Narrow, and None. Is their analysis infallible? Of course not, but to me it's invaluable just to find a resource that has this true long term value-oriented perspective.
• Other Morningstar Ratings - In addition to the stars ranking and the economic moat classification, Morningstar also includes a couple of other criteria: Fair Value Uncertainty and Stewardship Grade. The Fair Value Uncertainty rating is basically how much confidence Morningstar has in their valuation model of a specific company. I like this level of honesty and recognition that true investing is more than just a numbers game and there's a lot of variables that can affect our investments. The Fair Value Uncertainty ratings are: Low, Medium, High, Very High, and Extreme. The Stewardship Grade is a quick snapshot of how investor-friendly management's record has been based on a number of shareholder oriented issues.
• Daily Market Commentary and News
- Another great benefit. There's definitely plenty of daily market commentary and news resources from which to choose, and much of it of the frenetic, short-term, trading-oriented variety. Morningstar, on the other hand, feels like an oasis sometimes, a sensible, calm, value-oriented club beyond the chaotic reach of the frantic CNBC mindset.
• Video Analysis
- I really like how Morningstar has taken to producing regular, substantive video podcasts in the form of analyst discussions and interviews. The sessions typically run anywhere from 5 to 15 minutes, and the topics vary from analysis of a specific company to a sector or even the broader economy. Video content is not only convenient, but at some level, I think it can be more accessible than written content. After a long day of reading and writing emails, sometimes it's nice just to listen to what someone has to say. Especially when they have something substantive to say and aren't simplifying everything into pro and con sound byte debates squeezed between commercials every five minutes.

Morningstar Premium Membership 14 Day Free Trial

And then, go ahead and check out some analyst reports on your favorite stocks and review the Morningstar ratings. Run a few of the preset stock screens. Be sure to check out the video commentary and analysis. There's also a Portfolio X-Ray for a quick and fun analysis of your current portfolio.

It won't take you 14 days to know whether premium membership is a good fit. Canceling is easy, but you must request cancelation to avoid automatic billing. There's a toll-free number under the Membership tab after you sign in. The hours of operation are from 7am-7pm U.S. Central time zone and the two or three times I've called in, I've always gotten a professional, articulate rep right away.

Another tip: When you initially sign up for the free trial, you have the option of setting up the automatic billing for after the trial period: One Year, Two Years, Three Years, or Monthly. The default is for One Year.

I recommend bumping it up to two or three years if you can swing it (but don't do it if you're going to be paying interest on it). The longer out you go, the less you'll pay - for three years it works out to be just $10-$11 a month. Avoid the monthly plan. With taxes, you'll end up paying about $20/month.

And if you want to cancel but forget (always my biggest fear when I subscribe to something online)? The multi-year plan is still the way to go because it's refundable at a pro-rated amount - you'll still end up paying a lot less for however long (or short) you're a member.

Finally, you're also eligible for modest discounts on the handful of Morningstar's monthly advisory services, although I pretty much stick to just the premium membership myself. If you really want to consider a Morningstar advisory service, I'd suggest you take a look at the Dividend Investor and avoid the Growth Investor (what do value investors know about growth investing, after all?).

Best of luck -





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