The Motley Fool is an investment advice and stock picking website founded by brothers Tom and David Gardner. The website is best known for its Stock Advisor newsletter, which has outperformed the S&P 500 by a factor of four since its inception in 2002.
In this guide, we’ll take a look at 10 of the top pieces of investment advice from the Gardner brothers and the Motley Fool team.
Motley Fool Investment History
The Motley Fool was founded by Tom and David Gardner in 1993. In its early days, the platform was intended to offer investment advice that ran against traditional Wall Street thinking.
In 2002, the Gardner brothers launched the Stock Advisor newsletter, a monthly stock picking service that has returned over 550% in 19 years. David Gardner also launched the Rule Breakers newsletter in 2004, which has returned over 300%.
Today, the Motley Fool offers dozens of services, including paid stock picking newsletters as well as free investment advice and market analysis.
Motley Fool Investment Advice
The Motley Fool’s investment style reflects the thinking of both Tom and David Gardner. While the two brothers have slightly different approaches to investing, they share many fundamental ideas in common.
So, let’s take a look at 10 pieces of investment advice from the Gardner brothers.
1. Think Long-term
Tom and David Gardner tell Motley Fool subscribers to “invest for at least three years.” The brothers believe that good companies take time to grow and mature, and that selling too early leaves much of an investment’s upside on the table.
This philosophy can be seen in the Motley Fool’s approach to stock picking. Both Stock Advisor and Rule Breakers typically pick stocks with an investment horizon of five years or more, and some positions in these portfolios have been open for over a decade.
2. Accept Some Risk
The Gardner brothers believe strongly in stock investing as opposed to investing in lower-risk asset classes like bonds. As one of the members of the Motley Fool’s team puts it, “investing in stocks is the only way to achieve the growth that will build a nest egg.”
Tom and David Gardner recommend a relatively aggressive approach to investing, especially if you’re young and looking to build up wealth for retirement. For most working-age investors, they suggest it makes sense to keep around 80% of your investment portfolio in stocks.
3. Invest in Excellence
The Motley Fool approach to investing is to find explosive growth stocks that are leaders in their industry. Instead of settling for companies that are only of middling quality but trading at a discount, the Gardner brothers suggest that it’s much better to pay a premium for companies that are truly changing the world.
“I try to find excellence, buy excellence, and add to excellence over time,” says David Gardner. “I sell mediocrity.”
4. Let Your Winners Run
One of the top pieces of advice David Gardner offers to Motley Fool investors is to “let your winners run. High.” He encourages investors to buy before most people recognize the value of a company and to hold your position much longer than is common.
This view reflects the Gardner brothers’ belief that “winners keep on winning.” When you make a hugely successful investment, it’s better to let it ride than to try to perfectly time an exit.
5. Focus on Disruptors
The Motley Fool is built around investing in high-growth companies, and especially companies that are disrupting their industry. “I like to find the most innovative companies of our time,” says David Gardner.
While these companies have a higher risk of failure, the potential upside is enormous. For example, the Gardner brothers recommended investing in like Amazon and Netflix long before the majority of investors saw the potential of these businesses. The Motley Fool’s positions in these two companies are each up 21,000% today.
6. Keep a Diversified Portfolio
While the Gardner brothers like to swing for the fences, they also know that not every investment will be an overwhelming success. That’s why they recommend keeping a diversified portfolio of around 20 different stocks.
The brothers suggest starting out with a maximum initial position of just 5% of your portfolio in any one stock. If a company proves its worth, you can add to your position over time.
7. Be Good, Not Perfect
Part of the reason for the Gardner brothers’ focus on diversification is that they recognize how difficult it is to beat the market with consistency. David Gardner encourages investors to “aim for 60% accuracy,” meaning that just 60% of your stock picks outperform the S&P 500.
While this might not sound like much, this strategy can generate significant returns if you let your winners run and cut your losers loose early.
8. Add Up Over Time
The Gardner brothers avoid using the phrase “double down.” That’s because it suggests that you should put more money into a position when a company is doing poorly instead of putting money into winners.
Instead, the brothers prefer to tell investors to “add up.” That is, when a company is outperforming the market, the best thing you can do is add to your position.
9. Keep an Eye on Management
One thing the Motley Fool team talks a lot about is the quality of the management teams of the companies they recommend for investors. That’s because a management team’s vision is essential not just to guiding day-to-day business, but also to leading the company into the future. For companies that are looking to disrupt an industry, visionary leadership is essential.
Specifically, David Gardner suggests that investors should “look for purpose-driven businesses” and “businesses that value all their stakeholders.”
10. Cash is an Asset
While the Motley Fool team likes to take an aggressive stance, particularly when it comes to fast-growing companies, the team also recognizes the value of holding cash.
One Motley Fool analyst notes that “having solid cash reserves will help you avoid having to liquidate investments at a loss when you need money.” In addition, keeping cash around ensures you’re ready to make a big bet when an opportunity arises.
Conclusion: Motley Fool Investment Advice
The Motley Fool is one of the most widely used investment advice and stock picking platforms.
Motley Fool’s founders, Tom and David Gardner advise investors to build a diversified portfolio of disruptive, high-growth investments. While their strategy can be aggressive, the brothers’ long-term thinking and emphasis on holding onto winning companies have proven extremely successful.
Interested in checking out Motley Fool’s services for yourself? Right now you can get a discounted rate on your first year of Motley Fool Rule Breakers here, as well as a discount on Motley Fool Stock Advisor here.
