The Motley Fool has been recommending stocks for more than 25 years. In our Motley Fool review, we highlight the massive historical returns Stock Advisor subscribers enjoy. Currently, this number stands at 583%.
One of the little-known features of Motley Fool is the two simulation tools available to members. In this guide, we’re going to examine how these two tools work and whether they offer anything of value to the average investor.
The Right Investing Style for the Motley Fool
Before we dive into the two simulation tools, we need to talk about the right way to make money using the Stock Advisor program.
The Gardner brothers, who run the Motley Fool, tell all investors that they must be willing to hold their stock recommendations for a minimum of 2-3 years. Some stocks may be held for even longer periods to maximize profits.
Most short-term traders lose money, with one study revealing that only 3% of surveyed day traders made money over the course of a year.
As the old saying goes, “Time in the market beats timing the market.” That’s exactly the strategy the Fool follows.
If you’re unwilling to buy and hold, you’re not going to net a profit from the Stock Advisor program.
Probability of Positive Returns
The first simulator tool is called Probability of Positive Returns. It’s designed to show you how likely you are to achieve a profitable return based on previous Stock Advisor performance.
While you may think that by only focusing on Stock Advisor performance you are potentially leaving gaps in your knowledge, the success rate of the program in general largely makes up for it.
To use this tool follow these steps:
- Choose your desired stock
- Enter the number of stocks you would theoretically buy
- Enter the length of time you would theoretically want to hold them
You can adjust your parameters by moving either slider to the left or the right. The graph below will react to your parameters.
Not only will the graph tell you how likely you are to net a profit, but it will also present an average return figure.
This is ideal for deciding which of the Motley Fool’s stocks will work best in your portfolio.
Profit Value Simulator
The second main simulator Motley Fool Stock Advisor subscribers gain access to is the Profit Value Simulator.
The profit value simulator is designed to model how much profit you would make based on the number of Stock Advisor recommended stocks you buy and how long you hold them for. Again, you can adjust the parameters using the two sliders.
We recommend using these two simulators together to help you map out your route to a profitable portfolio.
Long Term Investing is the Key to Success
What many beginners miss when using these two simulators is they are designed to promote the benefits of long-term investing.
Even the best portfolio in the world will experience volatility and short-term declines. The key is to weather these storms. Unfortunately, this requires nerves of steel and is why 90% of active fund managers fail to beat the market.
The Motley Fool alters its parameters for success. Rather than looking for a 100% gain in year one, they measure success based on a 3-5 year time period. Known as multi-baggers, the gains made through medium- and long-term investing far outweigh the Stock Advisor program’s rare losers.
Which Motley Fool Recommended Stocks Should You Buy?
Most investors don’t have a huge pool of funds to buy two monthly stock recommendations and then keep investing in them. This is why these two simulations are so useful. They form a part of the necessary research you need to carry out before you buy.
So, which Motley Fool stocks should you buy?
The truth is, it depends entirely on factors like your personal financial goals, your age, and the current balance of your portfolio. Here are our tips for picking the right stocks:
- Do you understand the company and what they do? Only a fool would invest in what they don’t understand.
- Does that company have a competitive advantage? If not, why choose that company over its competitor?
- Evaluate the company’s stock price. The Fool has plenty of tools to do that.
The Bottom Line
Few people talk about the Motley Fool simulation tools. While they are not a game-changer, they are a highly useful tool for determining which stocks you should buy. Plus, you can also discuss the latest recommendations in the exclusive Motley Fool Stock Advisor chat rooms. Other investors will also have the same dilemmas as you.
The success of the Fool over the years speaks for itself. If you want recommendations you can rely on, subscribe to Motley Fool Stock Advisor now.
If you sign up via Modest Money, you’ll get 50% off your first years’ subscription by following this link.