Motley Fool Review: Can the Stock Advisor Beat the Market?

Motley Fool Review
Motley Fool Stock Advisor Dashboard

Product Name: Motley Fool

Product Description: Motley Fool has been offering stock recommendations and investment advice since 1993. Over two decades later, they are still one of the largest financial media companies in the world.

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4.3

Summary

Motley Fool has been offering stock recommendations and investment advice since 1993. Over two decades later, they are still one of the largest financial media companies in the world. We did an in-depth review of their stock advisor program to see if it was worth the money. Here’s what we found.

About Motley Fool

Motley Fool is one of the most well-known multimedia companies in the financial industry. The company was originally founded in July 1993 by David Gardner and Tom Gardner, who still run the company today. The company provides a combination of both free news (similar to sites like MarketWatch and Yahoo Finance) as well as premium financial advice and research. This is no small operation. Our Motley Fool review takes a closer look inside this operation to see whether or not the company is legit.

Tom and David Gardner

Motley Fool now employs over 300 people and is recognized as one of the top companies in the space. The company has maintained a positive reputation and is most well-known for its stock advisor program.

Motley Fool Stock Advisor Program

Motley Fool’s stock advisor program offers premium stock picks backed by extensive research. The Stock Advisor program claims to beat the returns of the S&P 500 by selecting outperforming stocks. Since its inception, the stock advisor picks have returned 333%, compared to 77% returns from the S&P 500. So, what exactly does the program offer? Let’s take a closer look.

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Monthly Stock Picks

The Motley Fool Stock Advisor program offers a few benefits, but the biggest value comes from the monthly stock picks. Subscribers will receive two new stock picks every month. These stock picks are recommended by Tom and David Gardner, the companies co-founders.

Motley Fool Stock Advisor Dashboard

When it comes to investing services, this is what most customers are looking for. They want simple stock picks and investment advice that is easy to follow. Motley Fool certainly delivers (we will get to this in detail later).

Stock Research

The Gardner brothers do extensive research on the stocks they recommend. They don’t simply say “buy stock $XYZ” without any explanation. Instead, they share their research on the company and explain why they are making the recommendation. This research is thorough and includes commentary on the company, sector, and general market conditions.

While some people just want the stock picks, others prefer to understand why the stocks are being recommended. It can add some peace of mind to understand why you are buying a stock (vs. simply following a recommendation). Regardless, the newsletter caters to both groups. You don’t have to read the research reports, but they can be helpful.

Motley Fool Amazon Report

Education

Subscribers will get access to additional educational resources related to investing in the stock market. The members’ area contains market news as well as general investment education. Once again, the stock picks are the stars of the service, but the education is a nice perk.

There are articles on the methodology the Gardner brothers use to research stocks as well as a few basic guides to investing. You can get access to investing information that may help you if you want to better understand the

Stock Advisor Education

Community Forum

The members’ section offers a community forum where members are free to discuss stock picks and general investing concepts. The forum is surprisingly active and serves as a nice community to network with other investors and exchange ideas.

You’ll find members talking about stock ideas and supporting new members who have questions about the service or investing in general.

Community Forums

Stock Advisor vs. Rule Breakers

The Motley Fool offers a handful of premium investment services, but the most popular are the Stock Advisor program and the Rule Breakers program. Many investors are torn between the two, so we felt it necessary to make a quick comparison.

Both programs are priced the same at $99/year or $19/month. The main difference between the services is the investment methodology used to pick the stocks.

The Stock Advisor program is the company’s flagship service. This service offers stock picks based around the methodology that made Tom and David Gardner renowned figureheads in the world of investing. Rule Breakers is a follow-up service primarily built on David Gardner’s methodology.

Both programs seek to identify stocks poised for exceptional returns. However, Rule Breakers is more focused on growth stocks. In this sense, Rule Breakers is just a more narrowly-focused stock picking service.

We believe that the Stock Advisor program is more favorable to Rule Breakers for a couple of reasons. First, you get access to more stock picks and resources. Second, the Stock Advisor program is clearly the flagship service. It’s the service that made the Fool famous, and it even contains a lot of the elements of the Rule Breakers service.

When in doubt, you can’t go wrong with the Stock Advisor program.

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How Good Are Motley Fool’s Stock Picks?

As mentioned above, most investors sign up for the Stock Advisor program to receive stock recommendations. Investors are looking to recoup the cost of the subscription through superior stock picks. As part of our Motley Fool review, we wanted to see how well these stock picks performed.

We are happy to report that, over time, the newsletter’s stock picks have outperformed the stock market. The stock recommendations are generally large-cap companies with lower risk than small caps and micro caps.

Additionally, the company provides multiple stock picks every month, giving investors the opportunity to choose from multiple companies. You can find a list of all stock picks, including data about:

  • The stock recommendation date
  • The company ticker
  • The market cap
  • The risk level
  • The performance since the recommendation (and relative to the S&P 500)

It’s beneficial that all stock picks are listed in a convenient table. This allows new members to analyze the performance and make decisions accordingly. Here is an example (to be fair, I’ve included historical picks instead of the most recent picks):

Motley Fool Historical Recommendations

Some of the recommendations are companies you would expect to find on the list (such as Amazon and Apple), while others are hidden gems.

The team does a great job of presenting the “full story.” The company releases in-depth reports with research-backed stock picks. They do not hype up positions in an attempt to get investors to buy the stock immediately. They share their bullish arguments while addressing any bearish counterarguments. Most stocks are accompanied by a risk rating to allow investors to decide whether or not the stock fits their strategy.

Motley Fool Risk Scale

The company is also quick to jump on shorter-term market trends with special reports (such as their recent report on the cannabis stock boom).

Motley Fool Special Report

Overall, the stock recommendations are well-researched. It’s important that new investors understand broader market conditions before entering a position into any of these stocks. Because most of these stocks are large caps, they tend to fluctuate relative to the S&P 500. While their performance is not interlinked, there is still a correlation. For example, during a strong bull market, most stocks will perform well (and the program’s picks are likely to outperform). During correctional periods, investors should be more cautious.

Motley Fool Performance 2020

At Top Trade Reviews, we pride ourselves on our thorough, up-to-date reviews of financial services. Accordingly, we wanted to provide an update on the performance of the Stock Advisor program in 2020.

2020 has been a crazy year for the stock market. We saw one of the most rapid declines in the stock market followed by one of the most rapid recoveries. So, how did Tom and David Gardner’s picks hold up during this time? Let’s take a look.

As of August 2020, the program has offered 15 stock picks. You can find the full list of recommendations below (with the company names removed out of respect for paying subscribers):

Motley Fool 2020 Performance

This table shows the recommendation date, the recommendation price, and the stock’s return since the time of the recommendation. This is benchmarked against the performance of the S&P 500 from the date of the Fool’s recommendation. As always, you can see that the company is transparent and shows both winners and losers.

Let’s dive into these results to see how well the program’s stock picks really performed.

  • The average share price of the stocks was $206.67. (Note: a stock’s share price doesn’t really matter, but some people like to know this)
  • Of the 15 stock picks, there were 10 winners and 5 losers
  • The average return of a winning stock pick is 70%
  • The average return of a losing stock pick is -25% (Note: this is weighed down heavily by one really poor pick that had a -94.1% return)
  • The average return overall is 38%
  • The average return of the S&P 500 is 11.75% (using the same “buy” dates as the stock picks)

What does this mean for your portfolio?

Let’s assume you put $1,000 into each stock pick for a total investment of $15,000 throughout 2020.

  • As of today, your $15,000 investment in Motley Fool stock picks would be worth $20,740, representing a profit of $5,740.
  • If you had invested that same $15,000 in the S&P 500, it would be worth $16,762, representing a profit of $1,762.

Motley Fool stock picks would have made you an extra ~$4,000 over the year.

If you only put $100 into each stock pick for a total investment of $1,500, here’s what the results would look like:

  • Motley Fool Stock Picks: $574 profit
  • S&P 500: $176 profit

Even with a small $1,500 portfolio, the Fool’s picks would have made ~$400 compared to investing in the S&P 500.

This is quite an impressive feat. Even with small accounts, it’s relatively easy to recoup the $99/year membership fee.

Motley Fool’s Investment Strategies

Some investors simply want to know what stocks to buy and at what times. Other investors prefer to learn more about the rationale behind a stock pick. There’s a wide range of investing strategies, such as momentum, value, and growth. So, how do Tom and David Gardner choose their stocks?

Motley Fool Investing Principles

Motley Fool Investing Principle 1 of 7

The company takes a well-rounded approach to their investment research. They account for broader market factors, sector trends, and the overall health of the companies they recommend. Fundamental research plays a major role in the decision-making process. The research team tends to assign a weight to both value and momentum plays. They seek to identify undervalued companies with positive catalysts on the horizon. Personally, I find this to be a favorable strategy as it provides the best of both worlds. Investors can take advantage of undervalued stocks without waiting years for the markets to recognize the companies’ true values.

The newsletter’s stock picks are time tested. The company has been researching stocks for over two decades.

Here’s a great video of the company’s co-founder, David Gardner, explaining his process in more depth:

Is The Motley Fool Legit?

Motley Fool brings to mind different things for different investors. For investors who have been around for over a decade, Motley Fool is the reliable stock picker for maverick investors. For newer investors, the investment media giant is more known for “double down stock picks” and “triple buy alerts.” So, which side is more accurate? Is the company a legitimate stock picker or simply a promoter?

While the Motley Fool has become more aggressive with its marketing over the past few years, the company’s core services remain the same. The Stock Advisor program is still as effective as ever, and it remains one of the best-priced programs on the market. There is one caveat, though.

You need to be able to look past the hype and avoid FOMO (fear of missing out). In our Motley Fool Review, we were focused on the quality of the Stock Advisor program. We ignored the hype and focused on the quality of the information and stock picks from this program alone.

Motley Fool will try to upsell you on certain services through marketing emails and promotions. While you’re welcome to explore these options, I recommend sticking with the Stock Advisor program. It’s simple and effective. Plus, how many stock alerts do you really need? If you build a portfolio with a few great stock picks, you will be good to go. You don’t need to sign up for a bunch of different investing services to make money in the markets.

Is the Stock Advisor Program Worth the Money?

The Motley Fool Stock Advisor Program is one of the most fairly priced programs available. Some research companies charge hundreds of dollars per month for their stock recommendations, but Motley Fool is affordable. One of the things we were most impressed with during our Motley Fool review was the pricing.

The Stock Advisor program can be purchased for $19/month or $99/year. Both plans renew automatically unless canceled.

Stock Advisor Pricing

At this rate, it’s hard to make an argument that the service isn’t worth the money. A single stock recommendation can make back the cost of the subscription ten-fold. While I ultimately opted for the annual subscription, I appreciated the availability of the monthly option, as it allowed me to test the service before committing to a year.

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If you’re still unsure about using Motley Fool’s Stock Advisor program, see how it compares to similar investment services below. We’ve reviewed all of the top stock advisory services, and these are our insights.

Motley Fool vs. Zacks

It’s hard to make an “apples to apples” comparison between Motley Fool and Zacks. While the services share similarities, they are also very distinct. Zacks is best for investors who want to combine their own research with Zacks’ proprietary tools. For example, Zacks gives every stock and automatic “Zacks Rank” rating. This rating is convenient when doing research on a lot of stocks. However, it can also make it difficult to narrow down the best stocks.

Motley Fool takes a different approach. The stock advisor program is a true “hands-off” approach to investing. The Fool’s team does the research, and all you need to do is follow the stock alerts. Of course, you should do some of your own research as well, but you don’t need to waste time filtering through a bunch of stocks. Motley Fool gives you investment advice that is easy to follow.

Zacks is best for investors who do in-depth research, whereas Motley Fool is best for investors who want to be given stock picks.

Motley Fool vs. Jim Cramer

Motley Fool and Jim Cramer are easily some of the most well-recognized stock pickers. Tom and David Gardner run Motley Fool, whereas Jim Cramer runs Action Alerts Plus. We thoroughly reviewed and compared both programs to see what the absolute best stock picking service was. After our Motley Fool review and Action Alerts review, we came to a clear conclusion.

We found that Motley Fool’s Stock Advisor program was better than Action Alerts Plus in almost every category. Both services provide stock pick alerts, but we much preferred everything about the Stock Advisor program. The Stock Advisor program is more diverse, easier to use, and costs less money.

Motley Fool vs. Robo-Advisors

Robo advisors have become increasingly popular over the past few years. Companies like Betterment and Wealthfront allow investors to create customized portfolios in a matter of minutes. Essentially, robo-advisors simplify investing for casual investors. Instead of choosing individual stocks, investors can choose their investment goals, and risk thresholds and the robo-advisory program will automatically create a portfolio (mostly consisting of ETFs).

While both The Motley Fool and robo-advisors cater to investors who want help building their portfolios, the two services are very different. Robo-advisor portfolios consist primarily of ETFs (funds), whereas the Stock Advisor program recommends individual stocks. Accordingly, this is not an “apples to apples” comparison.

Automated portfolios tend to mitigate risk through diversification, whereas individual stock picks aim to beat the market returns exponentially. You shouldn’t expect to see annual returns of over 20% on a robo-advisor portfolio, whereas those returns are entirely possible with an individual stock pick.

So, which one is right for you?

If you want a “set and forget” investing option, robo-advisors may be a good fit. If you want to beat the market and achieve exceptional returns, the Stock Advisor program is a better bet. You need to be able to monitor and manage your positions, but the potential upside is much higher.

Motley Fool vs. The S&P 500

Many investors are aware of the fact that the majority of funds do not beat the S&P 500 (also referred to as “the market,” “market index,” or “broad market”). This is generally the case with robo-advisors as well (which we discussed above).

In most cases, if you are looking at diversified portfolios and/or mutual funds, you’d be better of going with a broad market S&P 500 ETF, such as the SPY. Historically, the S&P 500 funds and ETFs beat diversified and specialized funds. That said, the Stock Advisor program is not a fund.

The Gardner Brothers who run the SA service aim to find stocks that beat the market and achieve exceptional returns – and they’ve been doing just that since 2002. They have a proven record of beating the S&P 500 by a considerable margin. Since the launch of the Stock Advisor program, the Fool’s stock picks have yielded returns of ~374%, whereas the S&P 500 yielded returns of ~100%.

Final Thoughts on the Stock Advisor Program

The Motley Fool Stock Advisor program is ideal for investors with longer-term horizons. Over time, these stock recommendations have outperformed the market. That said, investors should have realistic expectations. Not every pick is going to be a winner, and both the Fool and the S&P 500 will have down years. If you’re looking for well-researched stock picks, the Stock Advisor program delivers.

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