When brothers Dave and Tom Gardner started Motley Fool in 1993, it was nothing more than an Internet newsletter featuring the brothers’ advice on picking stocks and teaching investment lessons, such as the perils of investing in penny stocks.
Today, some reports indicate Motley Fool has revenue of more than $1 billion, and it has become one of the most popular stock-picking services for retail investors.
Motley Fool’s signature service, Stock Advisor, is its most popular subscription. Stock Advisor brags that it’s more effective than at least 95% of hedge funds in picking market-beating stocks. With a 500%+ return since its inception and a performance that has quadrupled the returns of the S&P 500, many clients feel that Stock Advisor is well worth the annual fee they pay for it.
But what about Motley Fool’s second most popular subscription, Rule Breakers? Does Rule Breakers have market-beating returns and should you consider getting a subscription?
Modest Money will delve into these questions and more with this Rule Breakers review. Even though Rule Breakers is priced at $299 per year, you can use this link to buy it at a third of the price, only $99 for the first year.
If you’ve been eyeing Stock Advisor and/or Rule Breakers for a while, you can bundle them for $199 for the first year, a total of $300 in savings at a rate of only $3.82 per week. You won’t find a better deal on premium stock research.
What is Motley Fool’s Rule Breakers?
Like Stock Advisor, Motley Fool Rule Breakers’ main service is two monthly stock picks. These picks might be completely new, or they might have been previously on the Rule Breakers list. Rule Breakers publishes their picks on the second and fourth Thursday of each month, announcing them live at 11:00 am EST.
When Motley Fool Rule Breakers announces its picks, you don’t just get the name of the stock so you can go out and buy it without knowing anything else. Rule Breakers live-streams an analyst explaining why he likes this stock. You get to listen to information about the company, the market, and the sector, all of which serve to help you make your decision.
As with Stock Advisor, Motley Fool is transparent when it comes to the calculation of the Rule Breakers stock picks’ returns. Once you are a member, you will have access to the Rule Breakers Performance tab, which includes the stock, when it was picked, its current price, the end-of-day price when Rule Breakers recommended it, its return, the S&P’s returns over the same time frame, and its return vs that of the S&P 500.
While Stock Advisor looks more at fundamental analysis, Rule Breakers mainly picks industry disrupters. These tend to be heavily tech-focused growth stocks from companies pioneering new business practices. For more information on the differences between Motley Fool Stock Advisor and Rule Breakers, you can check out our comparison post looking at the similarities and differences between the two companies.
Rule Breakers chooses these stocks based on these six perceived qualities:
- Top dog and a first mover in an emerging industry
- Sustainable advantage
- Strong price appreciation
- Good management
- Strong consumer appeal
- Grossly overvalued according to financial media
Most of these make intuitive sense, except for the last quality. Why would anyone buy a growth stock that most financial analysts claim to be overvalued? The idea is that Rule Breakers is going out on a limb and theorizing analysts have underestimated these stocks. A classic example is Tesla, which since being a Rule Breakers pick, has appreciated to the tune of some 16,000%.
Rule Breakers also publishes an annual list of nine foundational stocks that you should keep in your portfolio, a great way to start diversifying when you are starting out with the service. These Rule Breakers stock picks are published in the March/April timeframe each year.
Foundational stocks were formerly known as Starter Stocks if you’ve read previous reviews or invested in Rule Breakers in the past. These foundational/starter stocks also tend to be growth stocks but are chosen based on their ability to round out your Rule Breakers portfolio.
Best Buys Now
Around the middle of each month, Rule Breakers publishes its Best Buys Now. Selected from among Rule Breakers’ previous recommendations, these are stocks that Rule Breakers should consider adding to or increasing their stake in for one reason or another.
Motley Fool Rule Breakers also has a tab of bonus reports that focus on sectors they perceive as having high growth potential, highlighting additional information on the Rule Breakers’ picks in these sectors.
Premium Live Content
When you sign up for Motley Fool Rule Breakers or any other Motley Fool premium subscription, you get access to live streams of shows with Motley Fool analysts. These shows are an hour long each and available Monday through Friday during trading hours. You can also listen to archives of the shows.
These videos (you can also listen to an audio feed) focus on various aspects of the current investment market, from cryptocurrency analysis to semiconductor-focused stocks and any other investment topic you can imagine.
Next-Gen Supercycle and Trend Spotters
Motley Fool’s Rule Breakers is not to be confused with Rule Breakers: Next-Gen Supercycle and Rule Breakers: Trend Spotters. These services cost $1,999 each and provide advanced analysis on 5G stocks (Next-Gen Supercycle) and new early-stage trends (Trend Spottters).
Does Motley Fool Rule Breakers Beat the Market?
Claims that Motley Fool’s Stock Advisor posts market-beating returns have been independently verified. So how does Rule Breakers compare? Does it also achieve a 500% return?
Throughout its inception, Rule Breakers has achieved an average return of around 300%. That works out to twice the return of the S&P 500, which is around120%.
Given that Stock Advisor costs $100 less and achieves returns of 200% more, it seems like a no-brainer to avoid Rule Breakers and stick with Stock Advisor, right?
Not necessarily. Rule Breakers has only been around since the end of 2004, which is one limitation it has compared to Stock Advisor, which has been around for almost three years longer.
A second reason why Rule Breakers might lag Stock Advisor in terms of performance is that many of its picks have not yet reached their potential, meaning there could be a lot of upside return left in these stocks.
Pros and Cons of Motley Fool Rule Breakers
As with Stock Advisor, you should be aware of the pros and cons of Motley Fool’s Rule Breakers. Here is a breakdown.
- Good Supporting Evidence – Unlike some stock picking services, Rule Breakers does an excellent job explaining their investment thesis (the six qualifications listed above) and providing supporting evidence to back that up. They also offer contrarian points of view on their recommendations, so you can see the case from both sides.
- Reasonable Price – While paying $299 per year might make you balk, with the first-year discounts (buying it as an add-on to the deeply discounted Stock Advisor), you are paying far less than you would for any other research firm that consistently provides market-beating returns.
- Great Long-Term Winners – If you follow their recommendations, you are bound to eventually get in on the ground floor of an industry disrupter that turns out to be a huge growth stock, assuming Rule Breakers’ future performance matches its past results.
- Volatility – The stocks that Rule Breakers picks are virtually guaranteed to have significantly more volatility than those chosen by Stock Advisor and certainly much more than the market does as a whole. To counter the possible adverse effects of this, you need to follow Motley Fool’s recommendation of holding at least 25 stocks at a time and keeping each stock for at least five years unless Motley Fool publishes a sell notice on that stock. This process of portfolio diversification, a key component of modern portfolio theory, will help insulate you from the effects of market and company volatility.
- Website – We may be alone in this, but Modest Money found a bit of a learning curve in navigating the Motley Fool website, specifically toggling between several premium subscriptions and the Motley Fool’s free articles.
Motley Fool Rule Breakers: The Bottom Line
Modest Money assesses Rule Breakers to be a valuable subscription, especially when considered as an add-on to its more successful and less volatile older brother, Stock Advisor. With Rule Breakers, you incur greater risk, but you also will experience a chance to get a grand-slam hyper-growth stock into your portfolio.
Here are some investors who will benefit most from buying the Rule Breakers subscription:
- Active investors looking for stock advice and qualitative investment strategy
- Tech-focused investors
- Investors who don’t mind risk
- Well-diversified investors
- Investors who also use Stock Advisors
- Investors who want to buy companies, not just stocks
- Investors looking for high growth stocks, not dividend stocks
- Investors who make well-researched and reasoned decisions
This last quality is perhaps the most important of all. Rule Breakers works best if you study and believe in the company you choose to invest in instead of blindly throwing your money at what Rule Breakers is telling you to buy. Rule Breakers provides this research to you in a convenient format.
Another point to remember is that whether you go with Stock Advisor or Rule Breakers, or any other stock-picking service out there, you don’t have to invest in every pick. At first, you might want to, but if you listen to the Rule Breakers analysis on a stock and it doesn’t make sense to you, then maybe double down on a Foundational Stock or choose one of their Best Buys Now. If the analysis doesn’t make sense, don’t buy the stock.
If Rule Breakers sounds like the right research service for you, remember to use this link to get 67% off the first year. You’ll get the Rule Breakers subscription, normally priced at $299 for only $99.
With a price of $199 for the first year, the Stock Advisor/Rule Breakers bundle is an excellent option. Motley Fool backs all its subscriptions with its 30-day money-back refund program, which is essentially your chance to try both services for free. If you find out neither subscription suits you, just remember to cancel before the end of the introductory period.
Motley Fool offers sound, qualitative investing analysis advice. For beginner, intermediate, and even advanced investors, the Motley Fool portfolio of stock picks is more than worth it. The Rule Breakers service might be more volatile than Stock Advisor, but in the long term, you have a higher chance of picking at least one game-changing stock.