This article was last updated on 3/30/2020.
This article provides detailed information about the Motley Fool’s investment newsletter known as “Stock Advisor”. I signed up for the newsletter back in May of 2019. As of this writing, their bi-monthly stock picks from May 2019 through today are outperforming the S&P 500 (for full details, scroll down to the section titled “Motley Fool Stock Advisor Returns” at the bottom of this article). This outperformance is especially impressive given the major losses suffered by stocks since late February due to the COVID-19 pandemic. In addition, when looking at Stock Advisor through a longer time frame, their stock picks have, on average, been beating the market by a significantly larger percentage. This article will answer the following questions:
- What is the Motley Fool Stock Advisor?
- Is the Motley Fool legitimate?
- Does the Motley Fool Stock Advisor beat the market?
- Is Motley Fool Stock Advisor worth your money?
Motley Fool Stock Advisor Review
Are you interested in signing up for the Motley Fool Stock Advisor but are wondering whether it’s worth the money? Or perhaps you might be thinking that this service sounds too good to be true. This article will answer all your questions about the Motley Fool Stock Advisor as well as show you my results with their stock picks.
I signed up for a one-year membership of Stock Advisor at the end of May 2019 and I will be closely following the Motley Fools’ stock recommendations. This article will frequently be updated. Please sign up for our free newsletter to keep up with this review as well as our other informative articles related to investing and personal finance.
What is the Motley Fool Stock Advisor?
The Motley Fool is a financial services company founded in 1993 by David and Tom Gardner. Their website offers numerous articles and videos that pertain to investing. They also sell various investment newsletters which, they claim, can help you beat the market (see Image 1 below).
The Motley Fool Stock Advisor is probably their most popular newsletter. In it, they reveal two new stock recommendations every month. These recommendations are typically emailed to subscribers on the first and third Thursday of every month. Then, on the second and fourth Thursday of every month, they publish what they call “Best Buy Now” stocks. These are typically 5 stocks from their previous recommendations which they believe are the best opportunities to invest in at the time of publication (see Image 2).
In addition, the newsletter also provides a list of 10 “Starter Stocks”. These are companies the Motley Fool believes to be financially strong with solid management and business practices. They advise subscribers to purchase at least 3 stocks from that list. Once you’ve selected your 3 favorite companies, the newsletter encourages you to eventually build a portfolio of 15 stocks or more. We will be tracking “starter stocks” separately in this article due to the fact that they are only updated once a year.
Is the Motley Fool legitimate?
The Motley Fool is a legitimate business in the sense that they provide a real service for your money: you pay an annual fee and they send you weekly stock recommendations. The question is whether their stock picks actually beat the market as they claim in their ads. They sell numerous newsletters, but the one that we will be focussing on here is their Stock Advisor newsletter.
Is your 401(k) plan suffering from high fees or improper asset allocation? Here’s how to find out and how to fix it in minutes!
How Stock Advisor is advertised
Given that you are reading this Motley Fool Stock Advisor review, chances are that you’ve seen ads for their newsletter. After all, their ads are everywhere. But unless you’ve clicked on one of these ads, you might not have realized that they are selling a newsletter. The reason for this is because many of their ads claim to reveal a “hot stock” or an emerging industry and don’t mention anything about a newsletter.
Currently, one of those industries is the Cannabis industry. If you are a frequent reader of investing articles, chances are that you have seen an ad like this one from the Motley Fool:
Once you click on the ad, it will open a “special report”, like the one below:
After quite a bit of reading, the report finally mentions the “Stock Advisor” newsletter and tells you that you can get the report for “free” when you sign up.
What it doesn’t tell you is that the newsletter itself costs between $99 and $199 a year.
Here are some other examples of ads you might have seen for the Motley Fool Stock Advisor:
Does the Motley Fool Stock Advisor beat the market?
I have decided to put the Motley Fool Stock Advisor to the test. So I signed up for their newsletter at the end of May 2019 and will be posting (and regularly updating) the returns of their stock picks at the bottom of this article. As of 3/30/2020, the bi-monthly stocks recommended by Stock Advisor are beating the market by 10.49% (see below). It is important to take the cost of the newsletter into account (as well as the cost of trading, if any). You would need to invest a sufficiently large amount into each stock to offset the cost of the newsletter. For this reason, if you choose to sign up for Stock Advisor, you should only pay $99 per year and avoid the more expensive subscriptions. The good news is that the newsletter is currently beating the market by a sufficient margin that even investing as little as $100 into each stock, you would be sufficient to beat the market. But ideally, you would be investing more. Also, it is a good idea to take advantage of tax-sheltered retirement accounts, such as a Roth IRA, to invest in individual stocks.
Methodology and Assumptions
Every other week, I paper trade the latest stock recommended by the Motley Fool. I’m “investing” $1,000 into each stock. I assume no commissions and I buy fractional shares to invest as close to the full $1,000 into each stock as possible. (There are now multiple services that no longer charge commissions and/or allow you to purchase fractional shares, such as M1Finance.) I believe this to be a fair way of measuring the returns of their stock picks.
Then I “invest” $1,000 into the S&P 500 in a separate portfolio. I’m using Vanguard’s 500 Index Fund Investor Shares (VFINX), again with fractional shares and with no commissions.
- I signed up for the newsletter in late May, after they had already released their two new stock picks for the month. Luckily, both stocks were trading for a lesser price than when they were originally recommended. So I decided to start with those two stocks. Given that the price of both stocks was a bit lower than when the Motley Fools had initially recommended them, this should be more than fair to the newsletter.
- In order to make this test as realistic as possible, I look up prices for the recommended stocks at a random time on the day that the recommendation gets published. I’m trying to replicate the experience that a real investor would have with this newsletter. An investor would be unlikely to purchase the stock right at 12 pm CST (when the latest stock name is revealed), as he would need time to read the report and possibly do some additional research prior to investing in it.
- Once I look up the market price of the recommended stock, I simultaneously look up the price of VFINX and jot down both values to make a proper comparison.
- If the Motley Fool tells subscribers to sell a position, I will invest all proceeds into the VFINX.
- If a stock is recommended more than once, I will invest an additional $1,000 into that stock, as well as into the VFINX.
Motley Fool Stock Advisor Returns
Here’s the part you’ve been waiting for! Here are the results, as of 3/30/2020:
2019 Starter Stocks (published in 2018 but tracking since May 2019)
Stock Advisor’s 10 “Starter Stocks”: After investing $10,000 ($1,000 into each stock) in May 2019, the starter stocks are currently worth $9,217.07 (7.84% loss). Now let’s compare these results to the S&P 500. The $10,000 I invested into VFINX is now worth $9,411.37 (5.89% loss).
Winner: S&P 500
Monthly Stock Advisor Recommended stocks
After investing a total of $21,000 ($1,000 into each of the bi-weekly stock recommendations), my paper-traded portfolio is currently worth $20,702.40 (1.41% loss). Meanwhile, the $19,000 invested in the VFINX is now worth $18,501.70 (11.90% loss).
Winner: Motley Fool
2020 Starter Stocks (published by Motley Fool on May 30, 2019)
Stock Advisor’s 10 “Starter Stocks”: After investing $10,000 ($1,000 into each stock) on May 30th, 2019, the starter stocks are currently worth $9,213.25 (7.85% loss). Now let’s compare these results to the S&P 500. The $10,000 I invested into VFINX is now worth $9,390.28 (6.10% loss).
Winner: S&P 500
Remember that the results above do not take the cost of the subscription into account (this can run between $99 and $199 per year). So you would need to invest a sufficiently large amount into their stock picks to offset the cost of the newsletter, otherwise, your personal returns could vary significantly from the ones listed above.
|Date||Total Amount Invested||Returns*||S&P 500 Comparison||Winner|
2019 10 Starter Stocks
|Date||Total Amount Invested||Returns*||S&P 500 Comparison||Winner|
*Note: these returns do not take the cost of the newsletter into account
Is Motley Fool Stock Advisor worth it?
Although I wouldn’t spend more than $99 for an annual membership, Stock Advisor can be a worthwhile investment for someone interested in buying individual stocks. Below are some things to consider:
- Stock Advisor can introduce you to a number of companies in their earlier stages. Chances are that you will not be familiar with some of the companies discussed in this newsletter (although many are well-known companies).
- You can follow -and potentially profit from- some of the world’s most interesting companies, trends, and industries.
- All the stocks that they have recommended since 2002 are conveniently listed, along with their individual performance, buy/sell date, and a comparison to the S&P 500.
- You might beat the market by investing in their recommended stocks over the long run. Some of their past recommendations have produced enormous returns (such as Netflix, which returned more than 14,600% after they recommended it in 2004).
- Once you become a paying member, you will start receiving frequent invitations to their higher-end newsletters, such as “Cloud Disruptors”, “Blast Off 2020”, “Marijuana Masters” to name just a few. These newsletters are expensive (many are $1,000 per year or more). You will be getting multiple emails per week, sometimes multiple times a day. Feel free to ignore them. The results of these “exclusive” newsletters are not revealed anywhere to non-members from what I can tell. Also, the returns would need to be huge just to offset the cost of membership.
- The Motley Fool often writes articles about stocks they recommend and some of these articles will tell you not to buy a stock, even though it might be a Stock Advisor recommendation. (Non-members can easily tell which stocks are recommended by reading the disclaimer at the bottom of each article. However, it doesn’t tell you when the Motley Fool made the recommendation.)
- Don’t expect all their stocks to have a positive return. Some of the recommended stocks will experience huge losses. The good news is that your potential losses are limited to the amount you invest. As for your potential gains, the sky’s the limit.
- As always, past performance is no guarantee of future returns.
Stock Advisor performance analysis (as of 9/19/2019)
Although it is true that the market currently appears to be “crushing” the Motley Fool’s stock recommendations, it wouldn’t be fair to reject the newsletter’s claims after such a short run. For one, the stock market has experienced significant volatility in recent weeks and months. Many of the companies that the Motley Fool recommends are solid businesses. Quite a few of them are suffering short term losses due to the trade war with China and other market uncertainties.
There is no question that the gap in performance between the S&P 500 and the Motley Fool Stock Advisor has widened in recent weeks. Are the Motley Fools worried about their recent performance? I doubt it. For one, investing is a long-term game. Also, beating the market (or at least attempting to do so) requires additional risk since it concentrates your portfolio into a smaller number of companies. In addition, methods that have historically beaten the market (such as the Dogs of the Dow), tend to experience bigger losses in volatile markets.
If you are the type of person who cannot stand to see your portfolio drop more than the overall market from time to time, then clearly this newsletter is not for you. But for everyone else, I would keep an open mind and see what happens over a longer period of time. Stay tuned!
Conclusion: Motley Fool Stock Advisor Review
At this point, I have been tracking the Stock Advisor’s recommendations for roughly 11 months. Although their stock picks are currently losing money, they are beating the S&P 500, which is what this newsletter aims to do. Therefore, I now feel comfortable recommending this newsletter with the understanding that past performance does not guarantee future results. We still need more time to determine if it will continue to beat the market (and whether the outperformance will be sufficient to offset the cost of the newsletter). If you want to play it safe, index funds might be your best bet. However, if you are interested in potentially beating the market, then consider signing up for the Motley Fool’s newsletter. Also, please sign up for our free newsletter to keep up with our latest reviews of personal finance books and financial products.
- The 1-Page Marketing Plan: Book Review and Summary
- Motley Fool Stock Advisor Review (2020)
- Blooom Review 2019: 401(k) Management for the 99%?
- Book Review: “What Matters Most” by Chanel Reynolds
- Book Review: Mastering the Market Cycle by Howard Marks
The opinions in this Motley Fool Stock Advisor review are our own and we do not let advertisers influence our content. To support our work, some of the links in this article might be from our sponsors.