Motley Fool’s Stock Advisor ranks among our most highly recommended services. It’s one of only a handful of stock picking services that has consistently outperformed the S&P 500 across multiple decades.
In this guide, we’ll examine Stock Advisor to help you maximize the service’s potential. Keep reading for strategies on using 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 delivers two new stock picks each month, plus a curated list of recommended stocks to buy now and foundational stocks that Motley Fool analysts believe every growth investor should own.
Between launching in 2003 and March 2023, Stock Advisor has delivered 366% returns for investors. Over the same period, the S&P 500 returned 111%. At $199 annually, Stock Advisor offers exceptional value for a stock picking service with such consistent performance.
How to Use Stock Advisor
You can leverage Stock Advisor in two distinct ways.
First, you can simply purchase each new stock recommendation. This straightforward approach suits beginner and casual investors looking to invest in individual growth stocks. Given Stock Advisor’s strong historical performance, mirroring the portfolio can potentially help you outperform the market.
Alternatively, you can use Stock Advisor’s picks as a foundation for your own research. You can analyze the rationale behind each recommendation, conduct deep dives into fundamentals, and explore competing companies within the same sector. This approach demands more effort and solid fundamental analysis skills, making it ideal for intermediate and advanced investors.
Motley Fool Stock Picks: Prerequisites
Several foundational principles will help investors maximize the Stock Advisor system’s effectiveness.
Hold Stocks for 5+ Years
All Stock Advisor recommendations are designed as long-term buy-and-hold investments. While The Motley Fool cannot offer personalized financial advice, their experts recommend investors plan to invest for at least five years and remain comfortable ignoring short-term volatility. Even if a stock experiences sharp gains or losses within a year or two, you should maintain your position.
Stock Advisor rarely recommends selling stocks within five years. When it does occur, the service will notify you to sell.
Buy 25+ Companies
Stock Advisor recommends holding at least 25 companies in your portfolio. This diversification spreads your investment across multiple companies and reduces risk from any single company underperforming.
For example, if your portfolio consists of one stock that drops 30%, your entire portfolio falls 30%. With 25 stocks where one drops 30%, it only reduces your portfolio by 1.2%—a far more manageable impact.
To help build a diversified portfolio, the service provides 10 foundational stocks that Motley Fool analysts believe benefit every growth investor. By purchasing these plus both monthly recommendations, you’ll reach 25 stocks within eight months.
Invest Continuously
Stock Advisor encourages active investing. Rather than investing everything at once and stepping away, maintain ongoing engagement with your portfolio.
Instead, use monthly recommendations and the best stocks to buy now list to expand your portfolio. Over time, increasing your investment amplifies potential upside as holdings appreciate.
Consider building positions incrementally to leverage dollar cost averaging. Stock Advisor frequently re-recommends stocks that analysts favor, creating excellent opportunities to expand positions and implement dollar cost averaging.
Build Your Foundation
Whether building a new portfolio from scratch or overhauling an existing one, Stock Advisor provides several curated lists to accelerate your start.
The foundational stocks list features 10 stocks that Motley Fool analysts believe benefit every growth investor. You can add them to your portfolio or increase positions anytime. For Stock Advisor newcomers, establishing positions in these 10 stocks before purchasing new recommendations is advisable.
The rankings list (formerly Best Buys Now) highlights 10 portfolio stocks that Motley Fool analysts recommend expanding right now. For new subscribers or those with extra cash between recommendations, this list provides excellent buying guidance.
These 10 stocks are ranked by analyst team conviction. You can diversify across all stocks, focus on the top three to five, or select stocks from different industries.
You can also view the complete Stock Advisor recommendation list sorted by date, price, market cap, or performance. This enables you to explore stocks recommended shortly before joining.
Absent major price movements since recommendation, purchasing stocks recommended within recent months poses no issue. However, exercise greater caution with recommendations over six months old, as company conditions may have shifted.
Add New Positions
Stock Advisor releases two new picks monthly that you can add to your portfolio. Purchasing recommendations within days of release is typically optimal. You can also build positions incrementally over several weeks to dollar cost average.
Additionally, monitor the rankings list for existing holdings where you can increase positions. Stock Advisor encourages adding to winning positions when possible. The Motley Fool team has found that outperforming companies tend to continue outperforming. However, establish a diversified 25-stock portfolio before doubling down on winners.
Additional Considerations
Following the above strategies captures 90% of Stock Advisor’s benefits. However, considering these additional factors will help maximize portfolio quality and performance.
Diversification
Maintaining portfolio diversification requires ongoing attention. Ensure you hold at least 25 stocks. When selling positions, add new ones to maintain diversification. Select stocks across various market sectors for optimal spread.
Portfolio Weighting
Proper diversification requires roughly equal position weighting. A 25-stock portfolio where each represents 4% of total value is diversified. A 25-stock portfolio where one stock comprises 60% and the remaining 24 represent 40% lacks diversification.
Diversification spreads investment risk across multiple stocks. Consider the impact if any single company failed completely. If you couldn’t survive that scenario, further diversification is necessary.
Apply Your Own Investing Methodology
Using Stock Advisor doesn’t require following recommendations blindly. You needn’t purchase every pick. Carefully evaluate each recommended stock and its fit within your portfolio.
Your portfolio can include stocks and ETFs beyond Stock Advisor recommendations. For instance, you might allocate half your portfolio to an S&P 500 index ETF and half to Stock Advisor picks. You can also supplement recommendations with other growth or value companies you favor.
Read Reports
Stock Advisor includes research reports with every pick and provides regular portfolio updates. Reading these reports helps you understand the rationale behind each company in your portfolio.
Risk Management
One downside to Stock Advisor’s long-term buy-and-hold approach is occasional severe losses on individual stocks. As of March 2023, five portfolio stocks have lost 90% of their value since recommendation. While proper diversification should minimize major portfolio impact, most investors prefer avoiding such situations.
These stocks could recover, but not every investor can stomach holding nearly worthless positions. Consider your risk tolerance and acceptable loss levels. Then establish personal stop-loss rules for each Stock Advisor investment.
For example, you might sell any stock that loses 15%, regardless of whether Motley Fool analysts issue sell alerts.
Conclusion
The Motley Fool’s Stock Advisor service stands among the most popular and consistently successful stock picking services. You can leverage the service’s new recommendations, foundational stock list, and rankings to build a diversified growth stock portfolio. With these strategies, you can maximize Stock Advisor’s potential and optimize your portfolio’s performance.
