Would I subscribe to the Fool again?
About a year ago I decided to subscribe to Motley Fool Stock Advisor after becoming a fan of the Motley Fool Money podcast. I thought the podcast provided informative and entertaining content and I believed host Chris Hill to be genuine. Chris often co-hosts Motley Fool Money with Jason Moser who I also find to be likeable and well informed.
A year later, I’m still a subscriber of the podcast, but I’m no longer a subscriber to Motley Fool Stock Advisor. In this article, I’ll review my experience as a subscriber and why I decided Stock Advisor wasn’t for me.
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Investing philosophy
Overall, I’d describe the Motley Fool’s investing philosophy as Growth with a bit of growth at a reasonable price (GARP) sprinkled in. They’re a big advocate of holding at least 25 stocks for 5 years or more, which I appreciate as a buy-and-hold investor. Motley Fool’s strategy is dissimilar to Jim Cramer’s CNBC Investing Club (my review here) which does a lot of trading.
In my experience, Stock Advisor heavily favored technology stocks and often appeared to chase momentum with their buy recommendations. A few examples include Shopify (SHOP), Upstart Holdings (UPST), and Snowflake (SNOW), but they recommended many more just like these.
Most Stock Advisor buy recommendations were adjusted EBITDA kings which was a major turn off for me. Value investing wasn’t in their vocabulary. Stocks most resembling Value or GARP in their portfolio included Disney (DIS), Amazon (AMZN), and PayPal (PYPL).
Pros
Long history of outperformance
Motley Fool Stock Advisor did have some pros, most notably a long history of market outperformance. The below chart compares the cumulative growth of $10,000 invested in Stock Advisor versus the S&P 500. As you can see, Stock Advisor has trounced the market since 2002. It was this statistic that led me to becoming a subscriber in the first place.
Strong ethics and character
In consuming the various pieces of content (podcasts, write-ups, interviews, etc…), I concluded Motley Fool is genuine, well intentioned, and has strong morals. I didn’t need to agree with their stock picks to discover this. Stock Advisor gave me the sense they cared about subscribers and genuinely wanted us to learn. It’s difficult to describe the importance of strong ethics and character, but I believe Motley Fool to have both.
Informative and entertaining research
I’m one of those investing nerds who enjoys listening to earnings calls and reading 10Q’s so maybe I’m biased, but I thoroughly enjoyed research articles, interviews with CEOs and industry experts, and other content created by Motley Fool Stock Advisor. Each one of their stock picks was accompanied by a detailed write-up about the company, their reason for recommending it, and risks facing the business. The articles were informative, entertaining, and well researched and I often learned something I didn’t previously know.
Relatively inexpensive
An annual subscription to Motley Fool Stock Advisor costs $99. That’s cheap! By comparison, Jim Cramer’s CNBC Investing Club costs $399 per year or $49.99 per month. For $39, Stock Advisor offers a one month trial to allow potential subscribers an opportunity to test drive the service.
Cons
Weak focus on fundamentals
I’m the type of investor who believes owning a company’s stock means owning a stake in the company itself. As such, I have a strong focus on business fundamentals and believe price is what you pay, value is what you get. Motley Fool Stock Advisor is not too concerned about fundamental metrics such as return on equity (ROE) or return on invested capital (ROIC), for example. Nor do they put a lot of emphasis on debt, cash flow, SBC, or even price paid. Though to a lesser extent, Motley Fool’s philosophy reminds me of ARK Invest’s Cathie Wood who invests in innovation at any cost.
Too speculative
As I mentioned above, Motley Fool Stock Advisor mostly recommended companies that were profitable only after a pencil-whip of the income statement. The vast majority of picks were GAAP unprofitable, cash flow negative, and often heavily diluting shareholders via stock based compensation (SBC) and secondary offerings. Most were high flying technology companies trading on concept and potential rather than real profits. As a Warren Buffett and Charlie Munger disciple, it just didn’t fit my style of investing.
Tool heavily concentrated
The issue of being too speculative was compounded by the issue of being too heavily concentrated in technology. This came back to bite Motley Fool in 2022. If you look at the graph above, you can see a 50% drawdown peak to trough compared to the S&P 500’s 20% slump. The market punished speculative stocks trading on price-to-sales (P/S) ratios with no real earnings. Those who subscribed to Stock Advisor in 2021 and made buy decisions based on its recommendations are sitting on a substantial loss.
Stock Advisor vs Jim Cramer’s Investing Club
If you’ve ever looked for an alternative to Motley Fool Stock Advisor, you’ve probably come across Jim Cramer’s CNBC Investing Club (my review here). One of the biggest differences between the two services is the price.
At $99 per year, Motley Fool Stock Advisor is considerably cheaper than Cramer’s Investing Club which costs $399 per year. Around the holidays, Jim sometimes offers a discount of $299 per year.
Cramer’s Investing Club is more short-term focused, chasing momentum and trading in and out of stocks often. Not to say Jim doesn’t have long-term holdings in his portfolio because he does. But Jim’s investing philosophy differs greatly from The Motley Fool, which recommends holding at least 25 stocks for 5 years or longer.
If there’s one thing Jim Cramer’s Investing Club does better (or more often) than Motley Fool Stock Advisor, it’s communicate. With a greater focus on what’s happening in the near term, such as macroeconomic trends and earnings reports, Jim watches the market on an hourly basis. As a result, the Club provides updates on what seems like an hourly basis.
If you’re a stock market enthusiast like myself, this is a benefit. But if you’re more of a Warren Buffett type, you’ll probably grow tired of the emails.
Popular Alternatives
For interested investors, Motley Fool Stock Advisor and Jim Cramer’s Investing Club aren’t the only games in town. There are a handful of popular alternatives which strive to grant retail investors an edge up in their portfolios.
A few popular alternatives include:
- Jim Cramer’s CNBC Investing Club – follows Cramer’s every move within his charitable trust portfolio
- Motley Fool Rule Breakers – not for the faint of heart, focuses on growth stocks which are a bit riskier
- Seeking Alpha’s Alpha Picks – provides 2 stock picks per month based on key metrics like valuation, growth, profitability, momentum and EPS estimates
- Investor’s Business Daily – a strong focus on technical indicators and chart patterns with a bit of fundamentals sprinkled in
Each service, while similar in price, has its own philosophy, stock selection process, buy/sell criteria, etc… so be sure to review each before jumping in.
Conclusion
During my time as a subscriber, I never did make any buy decisions based on Motley Fool Stock Advisor recommendation. In retrospect, I’m glad I didn’t. I knew early on my investing personality didn’t jive well with Motley Fool’s.
However, that’s not to say Stock Advisor doesn’t have a place. Conversely, I think there should be a speculative portion in every portfolio where you’re hoping to find the next Tesla (TSLA). I just think you should limit the speculative portion to 5% or 10% of your portfolio. In my opinion, Motley Fool Stock Advisor’s portfolio was at least 60% speculative, which was too much for me.
So, would I subscribe to Motley Fool Stock Advisor again? Yes, but only for help in identifying those speculative stocks that could 10x or better over the coming years.
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