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Please don’t make this crucial mistake next Tuesday…

The hints just keep on coming… The writing is now on the wall.

A wave of analysts just changed their prediction to “rate cut” from “no change”. The market is now pricing in an 89% chance of a rate cut!

RBA governor Glenn Stevens himself said in a speech yesterday that, “Achieving the sort of growth we aspire to has become more difficult… The challenges ahead are substantial“.

Stevens’ comments were “unusually direct” and “included a strong hint the Reserve Bank will cut official interest rates to a new record low of 2.5 per cent” as The Australian Financial Review has reported.

Of course, you can guess what some of the foremost immediate effects of a rate cut will be:

1. Even lower rates for term deposits;
2. A wall of money pouring into the share market…

All this happening as soon as next week! But here’s what the news isn’t telling you:

Most investors will be making a classic mistake.

Below, I’ll describe this classic — and expensive — mistake and how you can avoid it. Plus, we’ll look at two stocks that have doubled in the last 12 months!

Please don’t make this crucial mistake next Tuesday…

You know that, at The Motley Fool, we’re only too happy when we see Australians becoming enthusiastic about the share market.

Still, we’ve seen this movie before. When rates are cut and investors pile into shares seeking high yields, too many end up overpaying for “blue chip” names. Yesterday’s great wealth builders…

I’m looking at you Commonwealth Bank (ASX: CBA), Woolworths (ASX: WOW) and Wesfarmers (ASX: WES)

These companies’ current combination of slow growth and high earnings multiples are likely NOT a recipe for market-beating returns in the years to come.

In the interest of saving ourselves some heartache — and possibly some low returns — let’s dust off one of the most important rules of successful investing:

Cost basis determines future returns.

If you pay too much for shares, your returns will suffer.

This includes “safe” bets like blue chips and the big winners of the past that may find it difficult to grow much larger from here.

That’s not to get bearish on the overall market! At The Motley Fool, we’re simply more excited by fast-growers and value plays than we are by the usual suspects…

A friendly reminder from the world’s richest banker

Frankly, I’m reminded of something Lloyd Blankfein — American, chief executive of Goldman Sachs, and world’s richest banker — said last week in Sydney…

Love him or hate him, Blankfein did have a point.

“I’ve been coming here for a long, long time, and during the last two decades of growth, growth, growth, and people are always distraught, overwrought, wringing their hands about how horrible things are and to my observation, they don’t look that bad,” Blankfein said.

He was referring to Australia, of course.

“It’s awful,” he joked”. You’ve now sunk to a level that we’re trying to get up to, so my heart goes out to you”.

$832 million in spare change? Plus, these two stocks have doubled in the last 12 months!

Sometimes it takes an outsider to remind us of how good we’ve got it in Australia — a country so wealthy and well travelled that, between your household and mine, we’re sitting on the best part of a spare billion dollars in foreign currency.

It’s true. According to travel website Skyscanner, $832 million in foreign currency is lying around in Australian homes. Nearly a billion dollars just between the couch cushions!

Perhaps it should come as no surprise. Almost 1 million Australians have visited the U.S. in the last year, while nearly 500,000 visited Europe.

There’s no doubt we Aussies love to travel. About 30% of the population goes overseas each year, a percentage that’s expected to rise by 50% by 2016-2017.

This makes for excellent “tailwinds” for companies in the travel sector. Meanwhile the domestic tourism industry is already worth nearly $100 billion according to IBISWorld.

In fact, some of the share market’s most recent big winners have been companies in the travel sector.

For instance… both Flight Centre (ASX: FLT) and smaller player Corporate Travel Management (ASX: CTD) have more than doubled in the last year, while the S&P/ASX 200 index rose about 24% over the same period, including dividends.

To be exact, including dividends, Flight Centre shares are up over 123%. CTM shares have gained 112%. Doubling your money in a year? That’s not too shabby a result…

One analyst’s favourite stock in the travel sector

Despite the run up in the share price, Fool.com.au analyst Mike King sees continued opportunity in Flight Centre shares.

Asked to pitch the shares in just one sentence, Mike had this to say:

“Flight Centre is growing its global earnings, but also enjoys strong local growth and a strong competitive advantage, and offers customers an integrated retail and online experience.”

It’s a good starting point for investors tired of the usual suspects and so-called blue chips!

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get 3 Stocks for the Great Dividend Boom in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

Of the companies mentioned above, Bruce Jackson has an interest in Commonwealth Bank, Wesfarmers and Woolworths.

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