This article was last updated on 7/10/2020. As of today, we are updating this newsletter from 4 to 5 stars.
This article provides detailed information about the Motley Fool’s “Stock Advisor”. This investment newsletter was started in March of 2002 and has a history of (mostly) outperforming the overall market. A strong track record is certainly interesting but I wanted to find out whether it still beats the market today. So 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. However, the level of outperformance has declined somewhat over time (for full details, scroll down to the section titled “Motley Fool Stock Advisor Returns” and “Stock Advisor Historical Returns” at the bottom of this article). The performance of their recent stock picks is especially impressive given the major losses suffered by market indexes since late February due to the COVID-19 pandemic. 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?
- Stock Advisor Pros and Cons.
- Stock Advisor key stats and historical returns going back to 2002 (this is an important section to review prior to signing up).
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 our articles about investing and personal finance. A lucky subscriber will win a FREE copy of The 1-Page Marketing Plan by Allan Dib (read our review of this book here).
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”, which is updated every year in May. 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.
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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 7/10/2020, the bi-monthly stocks recommended by Stock Advisor are beating the market by 53.82% (see details 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 or less and avoid their more expensive subscriptions. Also, it is a good idea to take advantage of tax-sheltered retirement accounts, such as a Roth IRA, to invest in individual stocks.
Mark Hulbert, the founder of Hulbert Financial Digest (a now-defunct service that tracked the performance of investment newsletters for many years) believes that part of the reason this newsletter has been outperforming the market is that it follows a buy and hold strategy. Back in 2013, he wrote: “One particular challenge that investors face in following the Motley Fool’s investment approach is that it requires the all-too-rare discipline of holding on to recommended stocks through bear markets.”
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 7/10/2020:
2019 Starter Stocks
Stock Advisor’s 10 “Starter Stocks”: After investing $10,000 ($1,000 into each stock) in May 2019, the starter stocks are currently worth $15,057.53 (50.56% gain). Now let’s compare these results to the S&P 500. The $10,000 I invested into VFINX is now worth $11,416.87 (14.17% gain). Note that this list was originally published in 2018 but I didn’t start tracking those stocks until May 2019.
Winner: Motley Fool
Monthly Stock Advisor recommendations
After investing a total of $28,000 ($1,000 into each of the bi-weekly stock recommendations), my paper-traded portfolio is currently worth $45,083.48 (61.02% gain). Meanwhile, the $28,000 invested in the VFINX is now worth $30,015.09 (7.20% gain).
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 $15,048.27 (50.51% gain). Now let’s compare these results to the S&P 500. The $10,000 I invested into VFINX is now worth $11,391.28 (13.91% gain).
Winner: Motley Fool
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||Amount Invested||Returns*||S&P 500||Winner|
2019 Starter Stocks
|Date||Amount Invested||Returns*||S&P 500||Winner|
*Note: these returns do not take the cost of the newsletter (which typically runs between $99 and $199 per year) into account. Sometimes they offer special promotions below $99.
Stock Advisor Historical Returns
This section will provide key stats on the performance of Stock Advisor recommendations to help you understand the risk and potential rewards of investing in this manner. Unlike the prior section, in which I was using my own data, I am compiling data provided by the Motley Fool* going back to March of 2002. Their website provides “raw” data so I’m going to break it down by year. Note that these stats are based on both open and closed positions, meaning that they include stocks that the Motley Fool recommended to sell. Once a “sell” recommendation is issued, that stock’s performance (along with the S&P 500’s performance) is frozen. The key stats below are accurate as of 4/5/20.
- 172 out of 435 bi-weekly recommendations have lost money. That represents 39.5% of their stock picks.
- 263 out of 435 bi-weekly recommendations have increased in value. That’s 60.4%.
- 186 of their stock picks are currently beating the S&P 500 (42.7%). The outperformance ranges from just 0.2% to a stagering 19,223%.
Stock Advisor Historical Returns
The below historical returns were compiled using data from the Motley Fool. Their stock picks have outperformed the market in 15 out of 18 years, which is pretty remarkable.
|Year||Stock Advisor||S&P 500||Difference|
The graph below shows a Stock Advisor’s performance above the S&P 500 (in other words, it’s tracing the percentages listed in the “Difference” column above, not the performance of the stock picks).
Notice that although the newsletter is still outperforming the market in most years, the percentage of outperformance has gone down significantly since 2008. below are a few possible explanations for this difference:
- The newsletter has lost its “magic touch”. While this is a possibility, the fact is that they are still outperforming the market most of the time. And even a smaller amount of out-performance can really add up over the years.
- It’s possible that the stocks have not yet had enough time to grow at an exponential level. Only time will tell.
- These percentages are a “snapshot” as of 4/6/2020, a day when the S&P 500 was down more than 20% from its all-time high. Given that many of Stock Advisor‘s recommendations tend to be growth companies, it is possible that many of them dropped more in value than the overall market. The only way to find out for sure would be to update these numbers when the market is back in positive territory.
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 is a great option for beginners interested in investing in individual stocks. It doesn’t require in-depth knowledge of investing to get started.
- It 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 or unsubscribe from them. From what I can tell, the performance of these “exclusive” newsletters is not published anywhere for non-members to see (a potential red flag). 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. Approximately 40% of them will lose money. And some of the recommended stocks will experience huge losses (one of their recent stock picks, a Chinese coffee chain, is down 87% as of 4/5/20). The good news is that most of their picks will earn a positive return. 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.
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’s another example of an ad you might have seen for the Motley Fool Stock Advisor:
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.
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*The opinions in this Motley Fool Stock Advisor review are our own and we do not let advertisers influence our content. Inveduco LLC does not have any business ties with the Motley Fool. To support our work, some of the links in this article might be from our sponsors. The performance information in this article is accurate to the best of our knowledge. Do not make any investment decisions based on information provided on this website without consulting with a financial advisor.