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Discussion in 'Med Business [ MD/MBA, DO/MBA, DDS/MBA ]' started by 1FutureDDS, Apr 17, 2006.
Or am I about to take a $150.00 hit? Tell me your thoughts on this "guidance company"
Do the 1 month free trial and decide for yourself. It's a good service, but it's only worth it if you are investing a good amount of money because you have to recoup your $150 in order for it to be worth it. They have a good track record, though.
I have some experience with these guys as I am a customer for two of their strategies - value and rule breakers (growth/tech-oriented stocks). Each has significantly outperformed the market over the last 12 months, which is about the length of my membership. That said, you could seriously underperform (or outperform) their returns if you aren't diligent enough to pull the trigger every time they make a recommendation to buy or sell, which is monthly. Also, the more you invest, the less the membership fee weighs you down. In addition, they have a very informative forum with some fairly sophisticated amateur investors so their site can be quite informative. Had to do over agian, I would.
Hope this helps.
My recommendation would be to spend $15 and buy A Random Walk Down Wallstreet by Bernard Malkiel or Uncoventional Success by Dave Swensen.
Malkiel is a former ibanker who is now an economics professor at princeton. His book is considered a classic, is well written, and shows all the data to back up his points.
Swensen invests Yale's endowment and has a superb record (the best of any college endowment). His book is rather dry, but since he is the best institiutional investor, its worth a look.
However, both make similar arguments: asset allocation acounts for 90% of a succesful investment portfolio and the other 10%- stock selection and market timing is essentially luck and hard to do privately.
Both authors would only recommend the Motley Fool if you want to play the market for fun, not expect to actually beat it.
I think the Motley Fool is pretty good. They are probably a bit too big now for me and I haven't been following it for about a year now. Also, there are too many people in value these days and that seems to be their strength. As an active investor there are alot of newsletters that can provide great information, but if value is your thing I don't think any are as well-reviewed as the Motley Fool.
I'm usually weary of growth stocks (despite the fun...value-type stocks make more sense to me), but these days there is just too much hype over value. But I love tech and I think I might actually go back and check out Motley's "Rule Breakers"
just dump all your money into a decent mutual fund, and pay people to do the work for you
This is bad advice.
Let me explain why, but I'm basing my reasons on Swensen, so see his book for the exact numbers, which he does cite.
Summarizing his points:
Almost all actively managed mutual funds underperform the S&P 500 by slightly more than the percentage that they charge you to manage your money. Examining the data for active mutual fund results over the past 30 years shows that over 90% UNDERPERFORM the S&P 500 over the long term (20yrs+) and underperform by about the amount of their percentage that they charge investors. So basically, the more you pay for a mutual fund, the more you lose. Even more damning is that that already high percentage is actually understated, as there is a survivor bias for mutual funds that were not quickly dissolved due to poor performance.
Yes, occassionally, some mutual funds beat the market here and there, but almost never consistently (15 years). A handful of fund managers showed real talent (e.g. Peter Lynch), but the percentage is so small and hard to tell that you have no idea who is merely "hot" due to luck vs. "hot" due to skill. Remember, the stock market is a zero sum game. If someone is outperforming the market some one else must also be underperforming. Not all the pros can be winners.
On the flip side, low cost cheap mutual funds such as Vanguard's S&P 500 index fund are shown to be a good value, because they more or less track the market, and they charge a fraction of a percentage vs. 2 to 3%. A fraction of a percentage vs 2 to 3% might seem small, but when compounded annually over many years is actually a huge difference in cost!
Additionally, actively managed funds, by their nature, must pay transaction costs to trade stocks, which again adds to their inefficiency and lowers their yield.
This leads to a natural question:
If mutual funds are so clearly a bad investment, why are they still around?
Well, the idea sounds great: hire a professional to manage your money, let the pro do the work, join the wall street elite. However, this ignores that true investing talent is extremely rare (with talent being the ability to consistently outperform the S&P 500), and also failing to realize that investor/manager interests are not always aligned. Some mutual funds simply make money by gathering assets and taking a percentage. This way, regardless of whether or not they beat the S&P 500, the fund still makes money. Sometimes that is even the point of the mutual fund. Come up with a catchy idea, gather huge amounts of funds from sucker investors, and just take a percentage of that pot. You don't think Wallstreet would be that greedy?
Additionally, most investors fail to realize that they are being suckered because they think that as long as their money has grown bigger over the years, they have won. They do not understand that there is a placebo called an S&P 500 index fund, which could have grown substantially bigger.
Also, sometimes people get lucky and catch their mutual fund on a hot streak, where it is actually beating the S&P 500. The data shows that the majority of these overwelhmingly do not last.
Last, Wallstreet is very good at marketing, and most people are mystified by the stock market. They take advantage.
Much of what I wrote is argued with clear data by Dave Swensen. If you would like to follow up on whether or not what I wrote is valid, I encourage you to research him and find out more about both him and his book. Given his success as manager of Yale's endowment (the highest performing university endowment) I think that makes him trustworthy.
In addition, you will find the same argument in other books such as:
A Random Walk Down Wallstreet, and even Investing for Dummies.
Though really popular, a book that is a complete crock of **** is Rich Dad, Poor Dad. Do not get suckered by that obnoxious nonsense.
There exist perhaps a dozen people on earth who have beaten publicly traded markets over the course several decades. It basically doesn't happen. Generally, you beat the market by getting lucky, getting inside information, or by finding arbitrage.
I am not a member of the Motley Fool, but I did have the good fortune to have a large holding in a stock that was subsequently recommended in their hidden gem newsletter.
The day it was recommended, the stock jumped about 10%. Not bad for a stock in the $7 range and with a daily volume of about 300,000 shares. The small float probably contributed to why it jumped so much. The stock is now at about $11 per share.
On the Yahoo discussion board for this stock (TMG), a lot of people discussed the Fool. I'll be the first person to tell you that you should not take a yahoo stock discussion board seriously, but there were some informative posts by Fool members and how well they had done over the past year. Here is a link to one posting:
If you poke around in that timeframe, you'll see lots of people posting about the fool.
Good luck with your investments.
I think Motley works well. My dad increased his initial investment by about 50% within the last 4 months or so reading this stuff every day.
i'd feel comfortable borrowing against my house and loading up on the vanguard primecap fund. it's averaged about a 16% annual return since 3 days before i was born, which is a good 21 years. my point is, there are great funds out there, you just have to find them. there is just too many investments out there, and hundreds of thousands of people who are smarter than us and make their living doing this stuff, so there is no point of trying to "beat the market", because the odds of you doing it are pretty low...
oh, and good call on the rich dad poor dad - it's just drivel, and you will be stupider for having read it.
The Motley Fool looks as though its full of **** too.
Two samples from their web site:
"Finally, you'll learn how six additional stocks...
Are earning subscribers profits ranging from 134% to 160% and even 485%
Anchor a portfolio of stocks that have returned on average 60.98% (versus just 17.28% had you bought the S&P 500 instead).
Are poised to make investors wealthy for the next three to five years at least"
"Beat the Market
With Motley Fool Stock Advisor returns of 72.96% (Tom) and 59.11% (Dave) that smash the average market returns of 21.85%, we can help you to build wealth steadily for many years to come. And we think our best investment returns are yet to come. Join us today!"
These returns they are promising are absurd. 72.96% returns! Why isn't Tom running the world's most successful hedge fund! Or how about poor Dave, who can only make the more "modest" 59.11% returns. He's the real schmuck since his returns are clearly fictional. I guess a gazillion billion % might have looked fake though.
If these guys were this good they would either charge $150,000 to get their aparently better than the best "pros" advice or $.15 because they are so insanely wealthy from beating the market. They charge $150 because they make their money off subscription fees.
While some people may like this newletter, their marketing at the very least is misleading, and certainly appeals to people's greed and ignorance in attempting to get people to hand over $150.
Their advertising is certainly over the top, especially since they came on the the scene portraying themselves as "outsiders" who condemned the outlandish claims of the mainstream investing community. However, their performance has been quite good and they have outperformed the market by a pretty decent marigin. Moreover, if you are truly interested in investing the stock message boards at the MF are a great resource and populated by some truly smart people.
I was considering taking some extra money I have an investing it but honestly the amount of time I've heard that you need to follow up on it is too time consuming as a pre-professional or professional student.
For those of you who've done it, what are the negative and positives you've experienced? i'm only looking for above average returns. But is it really worth it for $200 if you only have say $2000 to invest? I was looking at the rule breaker subscriptions.
If you want to put it into stocks, my recommendation is to put it into a low cost Vanguard mutual fund that is NOT actively managed. Most people who have studied finance theory, and not simply read for-profit newsletters that promote active trading (and thereby creates value to the information their selling), would agree with this.
That said, the Motley Fool is a huge waste if you only have $2000. It should be used for fun, not for truly expecting to beat the market. If the Motley Fool was really as good as people claimed, more people would use it, and this would eliminate the market inefficiencies that it is supposedly exploiting. (The inefficiency being that the stocks are improperly valued and thus you should buy or sell them at certain times). Example: if a stock is undervalued, as soon as the MF makes the recommendation people buy and it is properly valued. If it is overvalued, as soon as the MF makes the recommendation, people sell and it is properly valued again. Or if they were truly as good as they claim, a big fund would offer their advisors far more money than their $150 subscription fee can pay them, and they would lose all their talented advisors. This is not rocket science.
Also, their marketing sounds way too good to be true, and this should be a flashing light indicator that they are about subscription fees, and not real investing.
One thing that sounds dangerous about the Motley Fool from people's posts is that it encourages frequent trading and market timing. This will mainly enrich stock brokers who receive a transaction fee to place the trade, especially if you only have $2000. Yes, a few people will make a big profit here and there, but a few will also take a huge loss too. That's how the market works. On the whole though, the whole market goes up, so why pay transaction fees?
Read some books on finance theory, and you will find that market timing and security selection (stock picking) account for only a small percentage in a portfolios performance. The most important factor in a portfolio's performance is asset allocation (distrubiting money through diversified types of assets, i.e. stocks, bonds, real estate, stocks from foreign markets, emerging markets, etc. and rebalancing one's portfolio among these classes to target percentages.
This doesn't receive more press because its a boring and does not make great cocktail talk. However, it is advocated by the man who runs Yale's endowment, who has outperformed 99% of mutual fund leaders, U. Chicago business school (I've heard they know a few things about economics over there), and a legendary economics professor at Princeton, Bernard Malkiel.
Last, its also hard to asset allocate with only $2000, so again your best bet would be to find a Vanguard low cost mutual fund that more or less tracks the market.
Thanks for your input. I was just throwing out the the $2000 as an example. What would most see as the optimal amount to necessitate investment where its actually worth it? I'm in it for more making money over the long term, a little here and a little there.
I already have a few key stocks and I'm looking to add to them for a long-haul. I most likely wouldn't pull the trigger so maybe this isn't the way to go.
I suppose I'll stick to it the old fashion way of investigating stocks and watching P/E.
I recommend putting your $2 grand in a Vanguard mutual fund and simply letting it move with the market. Vanguard's S&P 500 mutual fund is considered the "placebo" investment.
This means that if people invest in specific stocks or an actively managed fund, they should compare their returns to how it would have grown had they simply put their money in Vanguards S&P 500 index. In the long run, most people do not do significantly better and many, in fact, do worse (usually, by the amount of their transaction fees and tax exposure from frequent trading).
In this regard, this fund sounds perfect for your investment of $2000.
You can do everything online at Vanguard.com
If you really want to pick stocks, do a lot of research on your own, you can do that, and you might beat the S&P 500. However-- and this should tell you something-- most professional mutual fund managers in the long run don't-- and if they do, they are considered investing gods.
While I agree that this poster should put his $2000 in an index fund, your characterization of the MF's investing strategy is incorrect. Although they have a few different services, their general philosophy is to focus on buying 6-10 stocks, normally small to mid-cap companies, and holding them for 5+ years or until the underlying business has fundamentally changed in a negative manner. Their process has absolutely nothing to do with market timing, frequent trading, or even TA.
I also disagree that if they were any good it would eliminate the very inefficiencies they are trying to exploit. Even if the Motley Fool has a few hundred or thousand small investors that buy based on their recommendations, their combined sales/purchases can't compare with those of a large mutual or hedge fund. In addition, even if they beat the market they are not good enough that the entire market is going to buy/sell based on their recommendation - they are not stock market gods, although you do get that idea from their marketing materials. They are, however, very good at what they do, and for someone with $10,000 or more to invest I think their services are worth the money.
You are right, I do not know their strategies, so I should not comment on them. I read a few posts earlier where it seemed to me that they encouraged people to trade often. Someone mentioned needing to have the discipline to trade when they recommended. I took this as trading frequently, which I really shouldn't have.
About efficiency, if they had a record of always beating the market, people would notice, and they would have a much bigger following. Beating the market is very hard, so people who give out correct advice on how to do so would have a huge following.
And again, if they had top advisors, who offerred truly skilled advice, some fund would pluck them away. Why wouldn't they? I'd imagine a fund could pay much better than an online newsletter. Most top analysts at I-banks get plucked, so I would assume the same would happen for online newsletters. Maybe the MF is written by top analysts who are doing this to help people out. However, since they charge, I doubt this.
Has the motley fool ever put their skills to the test and opened their own fund. If not, why not? If so, how has it done? My guess is that they wouldn't simply because it would risk exposing that they really aren't as good as they claim. A failing fund would kill subscription sales.
Still, I bet the motley fool does have a lot of great info and is probably a lot of fun to read. If someone wanted to invest their 10,000 all in stocks, and really enjoyed picking stocks and got enjoyment from doing it. Sure. Sign up for the Motley Fool. In that context, it is worth it. However, I highly doubt its users will consistently beat the market, and certainly not by the large margins that its marketing implies.
first, i'm pretty sure that the minimum at most vanguard funds is $3000, so if you wanted to get into say the vanguard total stock market index fund, you'd probably be better off buying the ETF (symbol: VTI) (disclaimer: ETF is my username, so it might be a conflict of interest). however, etfs are best for lump sum purchases, so if you plan on periodically adding more, you'd be better off with the fund (no commission). second, while using an index fund is ok, i don't think you'd be taking on an inordinate amount of risk by going with actively managed - ASSUMING that you go to a fund with a good manager (like primecap, for example).
You may be right. I don't subscribe to their service, but I do use the message boards. The company is billed as pro-individual investor and anti-managed mutual fund (because of the high fees/loads, and the fact that 90% don't beat the market), so it would be a bit hypocritical if they simply opened a mutual or hedge fund. Their reasoning is that they can focus on 10 stocks that they really, really believe in, but a mutual fund cannot because they manage so much money that they must diversify by necessity. You will never see a mutual fund that only owns 10 stocks - most own at least 30, or more - and for this reason it is almost impossible for fund managers, even very smart ones, to beat the market. Their advantage lies in their smallness.
I can't say for sure that they will beat the market over the next 10 years, but if I had a good chunk of money to invest I would bet on them over an index.
You'd have a lot more fun too. But if you beat an index is it from skill or luck? If you underperform it, what then? While an S&P 500 is "just an index", it is an index of the market. So you are saying that through their advice you are betting on beating the market. That is really quite hard to do on a consistent basis.
Interesting point: Swensen actually mentions that it only takes about 10 stocks to replicate the market, but he didn't cite his numbers, just made the comment in passing. He made it in the context of saying that finance theorists believe it takes only 15 stocks, while others believe 10 is enough.
Last, also keep in mind that asset allocation and rebalancing is considered by finance theorists to be far more important than picking specific stocks. So finding those 10 stocks may not be as time efficient as simply using an index fund in the grand scheme of things.
You are right about the $3000 minimum, and so an etf would be a good choice. And you are right that Primecap has been a very successful fund. My problem with actively managed funds is that they tend to charge high fees, but Vanguard does offer low cost alternatives. Primecap is cheap for an actively managed fund. While its fees are more than twice as expensive as the SP 500 index, its performance has surpassed those costs. It has been a great fund.
Unfortunately, most actively managed mutual funds don't make up for their higher fees, making most actively managed mutual funds a rip off.
yup. as long as you go with funds from vanguard or fidelity you should be ok. both have lots of funds with stellar managers, and charge low management fees, that, as you said, are more than paid for by the margin by which they beat the s&p.
Not quite. For examply, if you had gone with Fidelity Magellan the past ten years, which at one time was a king of mutual funds, you would have lost vs. an index. What is high performing in the past is not always high performing in the future... and vice versa. Granted, Peter Lynch leaving Magellan certainly didn't help.
Vanguard offers cheaper funds, and in general, the cheaper the better.