Motley Fool’s Stock Advisor is among our most highly recommended services. It’s one of only a handful of stock picking services that has consistently beaten the S&P 500 over multiple decades.
In this guide, we’ll take a closer look at Stock Advisor to help you get the most out of the service. Keep reading for tips on how to use Stock Advisor to build a portfolio, research stock picks, and more.
What is The Motley Fool Stock Advisor?
Stock Advisor is the Motley Fool’s flagship stock-picking service. It offers two new stock picks each month, plus a list of recommended stocks to buy now and a list of foundational stocks that Motley Fool analysts think every growth investor should own.
Between launching in 2003 and June 20, 2023, Stock Advisor has returned over 488% for investors. Over the same time period, the S&P 500 has returned 129%. Stock Advisor only costs $199 per year, which is an excellent value for a stock picking service with such consistent performance.
How to Use Stock Advisor
There are two ways you can use Stock Advisor.
First, you can simply buy each new stock recommendation. This is a straightforward way for beginner and casual investors to invest in individual growth stocks. Stock Advisor boasts very strong historical performance, so just mirroring the portfolio can potentially help you beat the market.
Alternatively, you can use Stock Advisor’s picks as a jumping-off point for your own research. You can read the rationale behind each recommendation, do a deep dive into a new recommendation’s fundamentals, and even check out competing companies within the same sector. This approach takes more work and a strong understanding of fundamental research, so it’s best suited for intermediate and advanced investors.
Motley Fool Stock Picks: Prerequisites
There are a few foundational principles that investors should understand in order to get the most out of the Stock Advisor system.
Hold Stocks for 5+ Years
All of the stocks that Stock Advisor recommends are intended to be long-term buy-and-hold stocks. You should plan to invest for a minimum of five years and be okay with ignoring short-term volatility. That means that even if a stock sharply loses or gains value in a year or two, you should continue to hold it.
It’s relatively rare for Stock Advisor to recommend selling stocks within five years. When it does happen, the service will let you know that you should sell.
Buy 25+ Companies
Stock Advisor recommends that you hold at least 25 companies in your portfolio. This is important for diversifying your portfolio across many different companies and reducing your risk to any one company underperforming the market.
For example, if your portfolio consists of a single stock and that stock drops 30%, your portfolio is down 30%. If you own 25 stocks and one of them drops 30%, it only drags your portfolio down 1.2%, which is much more manageable.
To help you build a diversified portfolio, the service has a list of 10 foundational stocks that Motley Fool analysts think every growth investor can benefit from. If you buy these and both new stocks recommended each month, you’ll have 25 stocks in your portfolio within eight months.
Invest Continuously
Stock Advisor encourages investors to be active in their investing. That means you can’t just invest all your money at once and then walk away.
Instead, you should use the monthly recommendations and best stocks to buy now list to expand your portfolio. Over time, investing more in your portfolio increases your potential upside as your holdings appreciate.
You should also buy into positions in increments to take advantage of dollar cost averaging. Stock Advisor often re-recommends stocks that the service’s analysts are excited about. This is a great opportunity to add to your position and implement dollar cost averaging.
Build Your Foundation
If you’re building a new portfolio from scratch or overhauling an existing portfolio, Stock Advisor offers several lists to help you hit the ground running.
The foundational stocks list offers 10 stocks that Motley Fool analysts think every growth investor can benefit from owning. You can add them to your portfolio or buy more of them at any time. If you’re new to Stock Advisor, it’s a good idea to buy a position in each of these 10 stocks before buying newly recommended stocks.
The rankings list (formerly the Best Buys Now list) shows 10 stocks from the portfolio that Motley Fool analysts recommend increasing your position in right now. If you’re new to the service or have extra cash to invest in between recommendations, this is a great list to check for what stocks to buy.
The 10 stocks are ranked in order of how strongly the analyst team recommends them. So, you can buy a little bit of each stock, focus on just the top three or five stocks, or pick and choose stocks from different industries.
You can also view the full list of Stock Advisor recommendations ordered by recommendation date, price, market cap, or performance. This list enables you to view stocks that were recommended shortly before you joined Stock Advisor.
Unless there has been major price action since a recommendation was made, it’s not a problem to buy stocks that were recommended within the past several months. However, you should be more cautious about buying recommendations that are more than six months old, as conditions within the company may have changed somewhat.
Add New Positions
Stock Advisor releases two new stock picks each month, which you can add to your portfolio. It’s typically a good idea to buy recommendations within a few days of when they are released. You can also buy into a new recommendation in increments over several weeks to dollar cost average your position.
In addition, keep an eye on the rankings list to find stocks you already own in which you can increase your position. Stock Advisor encourages investors to add to their winning positions whenever possible. The Motley Fool team has found that outperforming companies tend to keep on outperforming. However, before you start doubling down on winning stocks, you should first have a diversified portfolio of at least 25 stocks.
Additional Considerations
You can get 90% of the benefit of Stock Advisor just by following the tips above. But considering a few additional factors will help you maximize the quality and performance of your portfolio.
Diversification
Keeping your portfolio diversified over time takes effort. Make sure that you are invested in at least 25 stocks. As you sell positions, make sure to add new ones to your portfolio. It’s also a good idea to pick stocks across a wide variety of market sectors.
Portfolio Weighting
Another aspect of diversification is ensuring that your positions are roughly equally weighted within your portfolio. For example, a portfolio of 25 stocks in which each stock makes up 4% of your total portfolio value is diversified. A portfolio of 25 stocks in which one stock makes up 60% of your portfolio value and the other 24 make up 40% is not very diversified.
Diversification is key to spreading your investing risk across multiple stocks. Think about the effect that any one company going out of business would have on your portfolio. If you can’t survive that, you need to diversify further.
Apply Your Own Investing Methodology
Using Stock Advisor doesn’t mean that you have to follow the recommendations religiously. You don’t have to buy every pick. Carefully consider each stock that’s being recommended and whether it makes sense for your portfolio.
Another thing to keep in mind is that your portfolio can contain stocks and ETFs from outside the Stock Advisor universe. For example, you might allocate half of your portfolio to an S&P 500 index ETF and the other half to individual stock picks from Stock Advisor. You can also supplement Stock Advisor recommendations with other growth or value companies that you like.
Read Reports
Stock Advisor includes a research report with every pick and provides frequent updates about stocks in the portfolio. It’s worth taking the time to read these reports so that you know the rationale behind why each company is in your portfolio.
Risk Management
One of the downsides to Stock Advisor’s long-term buy-and-hold approach is that the service occasionally takes large losses on individual stocks. For example, as of March 2023 there are five stocks in the portfolio that have lost 90% of their value since they were recommended. While this shouldn’t have a major impact on your portfolio if you have been diversifying, most investors would still like to avoid this situation.
Of course, these stocks could turn around, bu not every investor has the stomach to keep holding a stock that’s lost nearly all its value. It’s important to think about your risk tolerance and how much you’re willing to lose. Then create your own stop loss plan for each Stock Advisor investment.
As an example, you could have a personal rule to sell stocks if they lose 15%, even if Motley Fool’s analysts don’t issue a sell alert.
Conclusion
The Motley Fool’s Stock Advisor service is one of the most popular and consistently successful stock picking services. You can use the service’s new recommendations, foundational stock list, and rankings list to build a diversified portfolio of growth stocks. With these tips, you can get the most out of Stock Advisor and maximize your portfolio’s performance.