Personal Finance

Stock Newsletters: Motley Fool Stock Advisor vs. Hidden Gems

Motley Fool founders David and Tom Gardner

One of the primary goals of any investor who buys stocks should be to beat the broader market's performance. But that's easier said than done, considering the S&P 500's historical annual return of nearly 10%.

Yet for more than a decade, both the Motley Fool Stock Advisor and Motley Fool Hidden Gems newsletters have consistently beaten the market. In fact, since Stock Advisor 's inception in 2002, its average pick has more more than tripled the 63% return of the S&P 500. And Hidden Gemsmembers have enjoyed an average return of more than 59% since its inception in 2004, beating the market by nearly 7 percentage points in the process.

But Stock Advisor and Hidden Gems have accomplished these feats using two distinct investing methodologies. So what makes them different, and which stock newsletter is the best fit for you?

Motley Fool founders David and Tom Gardner

Motley Fool founders Tom and David Gardner. IMAGE SOURCE: The Motley Fool

What sets Stock Advisor apart

At the helm of Stock Advisor are Motley Fool co-founders Tom and David Gardner, and each has a talented team of analysts who help them pick stocks for the service. Every month, Team David and Team Tom each recommend a new stock -- or re-recommend one of their previous picks -- that they believe Stock Advisor subscribers would be wise to consider buying. At the same time, they offer updates as needed on previous picks that they believe should be sold, and they put on "hold" any businesses suffering from what could be temporary concerns.

In addition, once per month Team Tom and Team David each provide a list of their own "Best Buys Now," consisting of five companies from their pool of existing Stock Advisor picks that represent timely buying opportunities for new investing dollars . Stock Advisor also maintains a list of "Starter Stocks," or essential companies that they believe can form the foundation of any portfolio.

There are several overarching principles that guide the Stock Advisor approach:

  • Buy businesses, not tickers. Recognize that underlying the ticker symbols are actual businesses generating revenue and profit from real products.
  • Be a lifetime investor. Take a long-term view of investing, which means keeping tabs on the news, earnings reports, and industries surrounding the stocks they recommend.
  • Diversify. Building a diversified portfolio not only helps protect against volatility but also helps Stock Advisor members sleep better at night.
  • Fish where others aren't. Don't follow the crowds, which means thinking for yourself and doing your own research.
  • Check emotions at the door. Be prepared to calmly weather, understand, and potentially take advantage of big swings in the share price of your stocks.
  • Keep score. Stock Advisor members have access to the performance of all previous picks at any time, dating back to David's and Tom's earliest recommendations in 2002.
  • Be Foolish (with a capital "F") and have fun. Investing isn't as hard as it sounds. Stock Advisor believes individual investors can do better than their brokers and enjoy themselves along the way.

Team Tom and Team David also employ their own separate methods to fine-tune this approach.

Team David, for example, 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 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 shareholder-friendly management team. Signs of the latter often include high levels of insider ownership and reasonable compensation structures.

How Hidden Gems finds diamonds in the rough

Meanwhile, Hidden Gems is led by co-advisors (and longtime Fools) Seth Jayson and Andy Cross, who are supported by their own team of exceptional analysts. Together, the Hidden Gems team specializes in finding and recommending undervalued small-cap companies -- those roughly defined, but not strictly limited to, businesses with a market capitalization of less than $2 billion -- with the potential to generate significant capital gains while taking a reasonable amount of risk.

Like Stock Advisor, Hidden Gems looks at its potential recommendations through a long-term lens. The service aims to hold stocks for at least three years but ideally wants to find companies it can buy and hold forever if possible. As a happy consequence of this long-term mentality, Hidden Gems does not attempt to "time the market" or engage in frequent trading.

Speaking to that "reasonable amount of risk," Hidden Gems subscribers should keep in mind that in exchange for greater potential returns, shares of these smaller companies tend to be more volatile than their larger, more stable counterparts. However, the team also knows that all too often this risk and volatility creates opportunities for patient, long-term investors to buy these small-cap stocks at attractive prices.

To help smooth things out and diversify, Hidden Gems believes its members should practice regular investing. That means putting money to work at least once per month to buy one or two stocks that appeal to you, and ultimately building a strong portfolio of at least 20 stocks recommended by the newsletter -- a task simplified by Hidden Gems ' annual list of "Core" portfolio stocks, monthly "Best Buys Now," two new recommendations each month, and regular updates on any stocks they believe should be sold, or put on "hold" given temporary concerns.

You can start beating the market today!

Whether you prefer Motley Fool Stock Advisor 's two-team approach or share Motley Fool Hidden Gems' zeal for finding the market's best small-cap stocks, both stock newsletters offer a compelling way for you to not only consistently beat the market over the long term but also continuously grow your skill set as an investor.

Best of all, you can sign up for either -- or both -- at a special introductory rate right now. Rather than paying the usual price, take advantage of this offer and click here to pay as little as $53 per year for Motley Fool Stock Advisor . Or you can click here to pay as little as $53 per year for Motley Fool Hidden Gems . Either way, today could mark the beginning of your journey to life-changing wealth.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

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