Is Stock Advisor from The Motley Fool Truly Legitimate or a Scam?

Investors often face the challenge of deciding whether to trust The Motley Fool’s Stock Advisor service. In this article, we will explore the credibility of The Motley Fool’s Stock Advisor, examining whether it offers legitimate investment advice or if it falls into the realm of a scam.

Subscription and Market Realities

As a current subscriber, my experience with The Motley Fool’s Stock Advisor has not been entirely positive. The service recommends stocks that are often in the range of $100 or more, which requires a substantial investment account to manage. This means that smaller investors may find it difficult to participate in their recommended picks.

There is currently no clear indication of a good price point for entering the market. In my experience, it is up to the individual investor to determine when to buy into the recommended stocks. This can be particularly challenging due to the market fluctuations and the lack of detailed guidance provided by the service.

Recent Recommendations and Their Credibility

A specific incident brought the legitimacy of The Motley Fool’s recommendations into question. On Thursday, November 7, 2024, I received an alert to buy a stock. However, the stock in question was priced at over $500 per share. Fast forward to the next day, November 8, 2024, and I received an email touting the same stock’s performance. The message claimed that anyone who bought the stock at the beginning of the week would have seen a 11% increase, which is a significant claim in such a short period.

Such rapid and significant gains in a single day are rare and may be indicative of a push to promote the service. This type of opportunistic marketing can be misleading and may not reflect the actual reliability of the recommendation. Investors must be cautious and not be swayed by such unsolicited and unverified claims.

Historical Performance Claims

The Motley Fool is notorious for boasting past performance. Their articles often make bold statements about how much money one could have made if they had invested in certain stocks earlier. For example, the article mentions Nvidia’s stock performance, showing that if one had invested $1,000 in Nvidia on April 15, 2005, the investment would have grown to an impressive $892,313. While impressive, this figure is somewhat misleading.

It is important to recognize that the past success of a stock does not guarantee future performance. The cost of Nvidia’s stock back in 2005 was significantly lower, making it more feasible for smaller investors to participate. Today, the stock is around $147, reflecting the impact of multiple stock splits (10:1, 4:1, 3.2:1, and 2:1) since 2005, which has dramatically increased the stock price.

Stock Splits and Investment Risk

Stock splits are a common practice to make a stock more accessible to a wider range of investors. However, they can also be used to make historical investment claims appear more impressive by diluting the original share price. For example, if Nvidia’s original share price was $1.00 and it underwent multiple splits, the current price would appear much higher, which can be misleading.

The Motley Fool often recommends stocks that have already experienced a significant rise in value. Such recommendations can be misleading for several reasons:

Stocks are typically recommended when they have gone up too far, making it a risky endeavor to enter the market at these points. There is a lack of guidance on when to buy, making the investor responsible for timing the market, which is notoriously difficult. The service often touts how they beat the SP 500, but this can be a matter of luck rather than consistent expert advice.

Conclusion

While The Motley Fool’s Stock Advisor service may provide some valuable information, it is important for investors to approach it with a critical eye. The service’s recommendations, especially in cases of rapid short-term gains and historical performance claims, should be evaluated with skepticism. Prospective subscribers should consider the cost of entry, the risk involved, and the lack of clear buy points before committing to the service.

Investors are encouraged to seek out multiple sources of information and consult financial advisors before making any investment decisions. A critical and informed approach will help in making more informed and sustainable investment choices.