So, what do you do if you want to beat the market but don’t like the odds?
You can hire help. Most affluent investors don’t have personal access to hedge fund quality brain power, but they can get it indirectly by subscribing to newsletters.
There are hundreds of newsletters out there. We like the Motley Fool for its long-term track record of returns and excellent price to value ratio.
Motley Fool Picks Have Strong Returns
The Motley Fool Stock Picks have more than tripled that of the S&P 500 since its start in 2012. So if the average investor had been using their stock picks since the newsletter started, they would have made three times their annual return.
Let’s take a look at some of the Motley Fool Picks and how they did.
- Amazon is up more than 10,964% since being picked.
- Netflix is up more than 20,960%
- Disney is up more that 5,500%
Amazon, Netflix and Disney are the big winners, but the overall performance of Motley Fool stock picks is pretty good.
What’s Driving the Returns?
Actually – Motley Fool Stock Picks are rooted in a hybrid fundamentals and value investing perspective. The Motley Fool Stock Picking team is lead by founders David and Tom Gardner. David and Tom use common sense approaches based on modified growth and value investing perspectives.
Team David uses a growth approach:
Team David looks for companies that are not only poised to benefit from “undeniable, long-term trends” but also have a certain level of “unquantifiable greatness” — that is, some sort of secret sauce that gives them an edge and often consequentially wins the love of consumers. David also wants to be able to get in early on these great businesses and has no problem adding to his positions as they keep winning over the long term.
Team Tom uses a value based approach:
Team Tom looks first for great companies operating in beaten-down (but still relevant) industries. He also seeks those with strong financials and a proven business model, as well as a shareholder-friendly management team. Signs of the latter often include high levels of insider ownership and reasonable compensation structures.
The Motley Fool Uses Sound Principles
Readers should note this is very similar to approaches used by famous investors like Peter Lynch and Warren Buffet. The Fool team then adds data about emerging trends, recent news developments and factors in various principles. These include:
- Viewing business as groups of people that make things or provide services, not just ticker symbols that move around computer screens.
- A buy and hold perspective. The Motley Fool takes a long term investing view.
- The need for diversification to maximize returns and minimize losses.
- Independent thought. The Motley Fool is privately owned so they are able to reach independent judgements in that other companies may not.
- Transparency and accountability. The results of Motley Fool picks are available all the way to back to 2002. The Motley Fool also requires ALL staff to disclose their stock holdings.
- Rationality. The Motley Fool’s selection process seeks to remove as much emotion as possible from the investing decision.
The emphasis on diversification, long term holding instead of trading and transparency are important. They allow The Motley Fool to minimize fluctuations in stock prices as well as force discipline into their selection process.
So, the Motley Fool picks are doing pretty well. What’s the value of their newsletter for investors? It turns out, a lot.
What The Motley Fool Stock Adviser Gets You
Basically you get a ton of stock picks. This includes a couple of stock recommendations mailed to you every month, their monthly selections called their “best buys now”, their recommended starter stocks and ongoing coverage of the stocks they’ve recommended.
But, a lot of the value isn’t in The Motley Fool’s picks, rather it is in the community that comes along with it. The Motley Fool community includes:
- Access to their stock forums.
- Access to their community, including the chance to email and share ideas with their senior equity analysts.
What is important to note here is that the stock communities are a dime a dozen on Facebook. Most of the top personal finance blogs also have a built in community. The Motley Fool’s community is however, very active – and more importantly comprised of people who are focused on getting the maximum return on their stock investment and willing to pay for it. This means it is almost certainly better quality than most of the other online communities out there.
The subscription also gives you access to their article databases, bonus reports and some tools like a stock screener. Most important though, is the access to the picks and the community.
For serious investors, the community is a time saver and a value add. Motley Fool essentially does the research for you. Most individuals can’t dedicate the time or energy necessary to make high-quality picks on their own. That leads many investors to underperform, in comparison to index benchmarks.
The community access is an important check against investing mistakes. In some cases, abandoning a particular investment is wise, such as when a negative incident means a company won’t recover. Pending corruption or money laundering charges may be a sign that bailing out is the right move. In some cases, this stuff doesn’t make the mainstream news, you just have to “hang out” with people who are observant and paying attention.
Stock Newsletters Aren’t A Silver Bullet
We’d be remiss if we didn’t add a note of caution. As great as any particular newsletter is, you’ll still need to follow investing best practices. This means diversification, keeping your expenses low, rebalancing your portfolio and keeping an eye on your holdings.
How you diversify is ultimately up to you. However newsletters like the Motley Fool’s Stock Adviser are just about stocks. They don’t look at mutual funds, real estate, exchange traded funds or bonds. They also say nothing about healthy personal finance habits like saving 10% of your income or owning your own home.
Its a stock picking service for people who want to try their hand at beating the markets – thats it.
Stock Picking Teams Aren’t Perfect
Companies are groups of people – while the Motley Fool has shown strong staying power over the past 40 years – its subject to some of the same failings that other investing shops have. The Motley Fool is a multimedia financial services company, and sometimes the Motley Fool’s news stories produced by the younger news staff reflect the staff’s lack of experience. However, this is not really an issue for the Motley Fool picks as their principles and equity research leads are seasoned professionals, including the founders.
The Motley Fool also has a tendency to send a lot of wordy marketing emails but you don’t get much of this with a Stock Adviser subscription.
The Motley Fool Stock Advisor is an excellent value for moderate to experienced investors who want help maximizing their returns. At $199 per year, the service offers stock investing choices based on a disciplined perspective and the subscription allows you to directly access the Fool investing community, which is an important value add. They’re offering a free 30 day trial, so you can always sign up, and cancel after a couple of of weeks if you aren’t a fan.
Here is a handy video describing the service and the motley fool stock picks approach.
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