3 Huge Value Traps You Must Avoid Today

If you talk to the most successful value investors on the planet these days, you'll notice a common refrain:

"We're … finding bargains galore"
That's Whitney Tilson, whose T2 Partners has earned 7% annually since inception in 1999 versus negative 3% for the S&P 500.

Not to be outdone, superinvestor Warren Buffett penned an op-ed in The New York Times comparing the present to troubled periods like 1932, 1942, and the early 1980s -- all fantastic times to buy stocks.

And I never thought we would see the day when GMO's notorious perma-bear Jeremy Grantham would say, "You are looking at the best prices in 20 years."

The last time that guy was actually optimistic about stocks was in 1982.

Great! So, what do I buy?
Of the criteria that investors use to scope out cheap stocks, three of the most popular are:

  • Beaten-down shares
  • Low price-to-earnings (P/E) multiples
  • Low price-to-book value (P/B) multiples

It makes sense -- if you can buy stocks at a discount to their former prices, to past earnings, and to the value of their assets, you've likely found a great deal.

But that's not always the case.

You knew there'd be a caveat
In a recent study, I found that the most thoroughly thrashed large caps during the last recession actually went on to underperform the least beaten-down stocks. To take one startling example, eBay (Nasdaq: EBAY  ) rose 42% during the recession and 136% over the next five years. Qwest, on the other hand, fell 65% -- and has not recovered.

How did that happen?

A 65% decline is a markdown, but not necessarily a sale, if the stock's intrinsic value has also declined -- or if it was overvalued to begin with.

That's why, back in a September column, I warned investors not to touch value traps Citigroup (NYSE: C  ) , Lehman Brothers, and Wachovia; many investors were (understandably) tempted by their beaten-down shares but didn't know the extent of the carnage these firms were facing.

And just like share price histories, multiples are highly fallible metrics that can often trick investors into buying value traps.

The truth about multiples
In his most recent quarterly letter, Grantham notes that in times of severe economic distress, low multiples can signal danger. As he delicately suggests, "The cheapest price-to-book stocks are deemed by the market to have the least desirable assets. Mr. Market is not always a complete ass."

According to Grantham's proprietary data from the Great Depression, low P/E stocks "showed a massive 'value' wipeout," vastly underperforming high P/E stocks from October 1929 to June 1932.

According to my data, that's been somewhat true of this crisis as well; within the S&P 500, the lowest P/E stocks like Bank of America (NYSE: BAC  ) also underperformed stocks like Qualcomm (Nasdaq: QCOM  ) and Kraft (NYSE: KFT  ) that had moderate P/Es since the start of this recession.

This isn't to say that pattern will necessarily continue, but it does confirm what many savvy Fools already know -- valuing a company means more than glancing at a multiple.

So, what separates cheap stocks from value traps?
Obviously, this isn't something that can be boiled down to a single metric, but we can glean from writings and interviews given by Tilson, Buffett, and Grantham at least three warning signs:

  • Inconsistent earnings power
  • Lots of debt
  • Weak competitive positions

Companies that share these characteristics are dependent on external sources of capital and can be particularly vulnerable during a credit crunch/recession double-whammy such as the one we are facing today.

With that in mind, here are three stocks I believe to be value traps. While shares are beaten down, and they trade at below-market P/Es or below book value, these companies also have weak competitive positions, severely depressed earnings, and substantial debt:

Company

52-Week Return

P/E

P/B

Debt/Equity

Citigroup

(88%)

N/A

0.3

444%

Student Loan Corp.

(63%)

12.8

0.5

1,735%

Royal Caribbean Cruises (NYSE: RCL  )

(48%)

7.3

0.5

103%

Data from Birinyi Associates and Capital IQ, a division of Standard & Poor's.

And they are facing very serious problems as well, such as writedowns, declining business, and/or managerial missteps. Future earnings may look nothing like the trailing earnings those multiples are based on, book values are in some cases illiquid or overstated, and their balance sheets are shaky to boot.

If you want to take advantage of the opportunities this market selloff has given us, you'll want to look elsewhere.

A better way to find value stocks
Let's contrast that with Buffett's famous purchase of $1 billion of Coca-Cola (NYSE: KO  ) stock back in 1988.

From Roger Lowenstein's Buffett biography:

By the latter part of 1988, Coca-Cola was trading at 13 times expected 1989 earnings, or about 15% above the average stock. That was more than a Ben Graham would have paid. But given its earning power, Buffett thought he was getting a Mercedes for the price of a Chevrolet.

Given Coca-Cola's tremendous ability to generate free cash flow, a competitive brand and distribution, and potential for foreign expansion, Buffett judged the stock was trading at a discount to future cash flows. And he's been rewarded with $7.8 billion in profits for his courage.

It's companies with massive competitive advantages, huge earnings potential, and the ability to generate cash that you -- like Buffett -- want to buy.

The Foolish bottom line
Legendary value investors such as Buffett, Tilson, and Grantham all believe that stocks are cheap right now, but they're also smart to be selective about which stocks they buy. Likewise, our Inside Value team is astounded by the bargains we're seeing, but we know that not every stock that appears cheap necessarily is. If you'd like to see which stocks we think are real bargains today, click here to try the service free for 30 days.

Already subscribed to Inside Value? Log in at the top of this page.

Ilan Moscovitz doesn't own shares of any companies mentioned in this article. eBay is both an Inside Value and a Stock Advisor recommendation. Coca-Cola is an Inside Value and an Income Investor pick. Kraft is a former Income Investor pick. The Fool has a disclosure policy.


Read/Post Comments (78) | Recommend This Article (144)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 30, 2009, at 2:36 PM, CLIFFORD787 wrote:

    MR BUFFETT BOUGHT COKE OVER 20 YRS AGO.

    STILL A GOOD BUY????

    CLIFFORD

  • Report this Comment On May 30, 2009, at 7:32 PM, tablerox wrote:

    why do all your articles end with a lead -in to another publication to buy?

    i'm done with motley fool when my current subscription ends!

  • Report this Comment On May 30, 2009, at 11:02 PM, sharpharry wrote:

    I feel the same way you just bait us with teasers instead of giving us some good tips,and then you want us to but into another publication in order to get the teaser .well tipan insider and the others are all about getting more money for another tip.you guys are all ripping off the working class people ,you don't give a dam about us ,just take take take ,me me me is all i see.well when my subscription ends it ends .

  • Report this Comment On May 31, 2009, at 10:37 AM, rjp001 wrote:

    Right on. I agree that the tips are just hints, and if you want to get any serious content, you have to subscribe to more services. I think Motley's usefulness has expired. They're nothing but a spam service -- that we actually subscribed to -- for other questionable services. Truly we must have been "Fools" for engaging them in the first place.

  • Report this Comment On May 31, 2009, at 5:04 PM, boultonconstruct wrote:

    I dont understand, If tipan is about getting more money from people for another tip how is the fool a rip off, they are doing the same. Why is one a rip off and the other not ????

  • Report this Comment On May 31, 2009, at 5:07 PM, boultonconstruct wrote:

    I do understand it does get old but at least I can say the fool has picked some good stocks to date, are there any others doing any better????

  • Report this Comment On June 01, 2009, at 10:05 AM, JGBFool wrote:

    The article tells you exactly what the headline advertises-- three "value traps" to avoid.

    It also explains some of the "red flags" to look for, and some valuation tools that can be useful for an investor.

    Why the complaints?

  • Report this Comment On June 01, 2009, at 1:16 PM, BobHaury wrote:

    I agree with most of the comments above, but think that all the "extras" that they try to get you to sign up for, should be part of the basic package that we paid for.

  • Report this Comment On June 03, 2009, at 8:38 PM, dfox13 wrote:

    why do something for free when others are willing to pay you for it?

  • Report this Comment On June 05, 2009, at 2:54 AM, dividendgrowth wrote:

    You guys need to cut TMF some slack:

    They have to make a living too.

  • Report this Comment On June 05, 2009, at 10:48 AM, Zman622 wrote:

    TMF has too many products to sell, too much of the time, it takes away from the message.

  • Report this Comment On June 05, 2009, at 11:16 AM, bknees wrote:

    I must agree, every article they write ends in a sales pitch. And they splinter every possible category. It just gets old trying to read anything they write because it is written with the 'pieces of cheese leading to the trap'. The trap, of course, is pay us and we will tell you the rest.

    I'm not saying they don't have value, just find another way to make the sales pitch. So many internet scams use the same technique.

  • Report this Comment On June 05, 2009, at 11:54 AM, Bonefish100 wrote:

    Yup, I'm getting a little sick of it too. Always a new pitch and a newly created newsletter on the horizon.

    This really IS starting to look like spam.

  • Report this Comment On June 05, 2009, at 1:02 PM, CaptainTee wrote:

    I too agree and my TWO subscriptions will also be canceled on expiry.

    What I also wanted to add to the negative, is the way TMF bends the statistics. Their so-many-percentage- over-the-market claims regularly disregard the sell recommendations, which invariably come to late at big losses. Those losses are then disregarded, since they are no longer part of the portfolio.

    Sure there are some good tips. I don't question the competency of the Fools, but the constant spamming is getting on my nerves too. There must be a less annoying way to make a buck.

  • Report this Comment On June 05, 2009, at 2:03 PM, Betrogene wrote:

    Yes, I too am at my limit with these infinite come-ons and teasers. What did I buy a subscription? I thought it was to get the information these teasers promise and instead all my subscription bought was the right to get continually hit-up to pay for information I THOUGHT I was going to get from my subscription. At this point I will not renew my subscription and will tell others it is not worth it. When Motley started out, it was great with everything in one newsletter. Now, it is clear, their initial ethos of helping others invest has been transmogrified into how can as many dollars be generated by the "service" as possible. VERY FRUSTRATING!!!!

  • Report this Comment On June 05, 2009, at 2:10 PM, Beebzer wrote:

    Yes, it would be better if pitches were not disguised in the trojan horse of a pseudo-newsworthy article. Lacks journalistic integrity. Why not separate the legitimate articles from the pitches--would give both more credibility. This stuff has a boiler room quality that leaves such a bad taste. Try "Seeking Alpha" for articles of more integrity.

  • Report this Comment On June 05, 2009, at 2:40 PM, bagbest wrote:

    The MF is a for profit corpoporation. They are in business to make money, not so much from the market, rather from your pocket. Keep that in mind. If their subscription service failed to bring in revenues based upon the greater "fool", they would most certainly be out of business. I canceled long ago.

    Bagbest

  • Report this Comment On June 05, 2009, at 2:55 PM, deenaz wrote:

    I just joined and I'm very disappointed. By the time I've scrolled down through all the hype, I've missed the market. Think they should have one subscription and stop the blatant used car salesmen tactics. I will not renew.

  • Report this Comment On June 05, 2009, at 3:25 PM, jerbojo wrote:

    Sounds like a lot of bottom feeders in this list. Looking for something for nothing. I know what bottom feeders in the ocean get, Do they?

  • Report this Comment On June 05, 2009, at 3:26 PM, calting wrote:

    You do not have to wait for your subscription to run out, you can cancel at any time. I did!

  • Report this Comment On June 05, 2009, at 3:45 PM, sloskier wrote:

    Agree with above. Not rerewing. They are destroying their reputation by acting like hustlers.

  • Report this Comment On June 05, 2009, at 4:02 PM, oshuneer wrote:

    I have to agree with a number of the above commenters. Why clutter my inbox if you are only going to give me half the story and then ask me to subscribe to another publication to get the rest. You certainly make it seem as though your merchandising schemes are as important as your trading advice and that can only undermine your credibility.

  • Report this Comment On June 05, 2009, at 4:10 PM, softtail3 wrote:

    Bought AINV on their recommendation WHAT A DOG THAT TURNED OUT TO BE!!!!!!!!!!!!!!!!

  • Report this Comment On June 05, 2009, at 4:23 PM, TMFDiogenes wrote:

    Hey Everyone,

    Thanks for posting. I just thought I'd respond to some of the points people have raised. First of all, this is not a teaser. As JGB Fool writes, "The article tells you exactly what the headline advertises-- three 'value traps' to avoid. It also explains some of the 'red flags' to look for, and some valuation tools that can be useful for an investor."

    What you have here is free analysis that took me a great deal of time to compile, going well above and beyond naming just three names as I promised in the headline. Then, there are two sentences briefly mentioning that if you'd like free stock ideas as well, they are available. After reading about those stock ideas, some people decide they like our membership service so much, they'd like to join.

    In order for us to produce free content, we have to pay writers, financial editors, copy editors, fact-checkers, techies, utilities, and so forth. As much as I wish it were the case, Verizon will not accept the excuse that we'd prefer not to pay for their services because we find their monthly bills annoying.

    Now, there are many ways we could raise the money to necessary to produce all of the free content on fool.com. Here's a recent post by Tom Gardner on this topic:

    "I have a question for you. Would you rather pay to use Fool.com? While it is true that we reference our membership services, we do so in order that not have to: a) hit you with long interrupt ad screens, b) throw a few more popup ads at you, and c) hit you with a annual, monthly, weekly, daily, or hourly fee to access Fool.com.

    Of those options, we've decided that providing top-notch investment opinions and analysis, edited to the highest quality standard, linked into an open free community, with unlimited free data including CAPS... with nothing more than a reference to our membership services....is preferable.

    I am not defensive about this. Or I hope I'm not. We're open to your suggesting a better commercial approach. Since we're all capitalists here, we can agree that the customer must pay somehow. Would you prefer a flat annual fee? A thousand popup ads? Or mild references to our membership services?"

    I'll reiterate that question, because it's a good one. If someone finds the two-sentence reference to our membership service annoying, that's ok. if you are going to suggest that we stop doing that, please suggest a preferable way for us to raise the money that's necessary to pay Verizon, our editors, fact-checkers, writers, landlord, and so forth.

    Bake sales are not in our circle of competency.

    Thanks everyone for posting. And seriously -- we are willing to consider suggestions that seem to make sense.

    Ilan

  • Report this Comment On June 05, 2009, at 4:31 PM, oneofmanyfools wrote:

    I too am a fool. LOL I subscibed just to get 100 emails a week telling me to subscribe to a different product. I bet I could research history and then claim I predicted it too! It's funny if you think about it.

    I have just made some wild ass guesses and lucked out with a better than 70% realized gain since 03/09 None of which were mentioned in the miriad of foolish products. Had I bought what was highly touted, I would be down that much if not more. I think they make most of their money selling snake oil than from the market.

    Oh, btw, David DeAngleo does this same sales technique with how to double your dating. The difference is, he's program WORKS!!!

  • Report this Comment On June 05, 2009, at 4:55 PM, bigroosterdaddy wrote:

    I don't understand why people get so upset over a little sales pitch. Lets put it into perspective. Nobody is forcing you to be a member or purchase their products. You have the ability to delete the news letter and also to not visit the website. They provide free access to a great on line community and their premium products are good source of informaton. I for one don't have hours a day to spare doing research and looking for good companies to invest in. TMF breaks it down in a clear concise format that is easy to understand. I would much rather pay them an annual fee for content of my choice instead of commision to some broker. BTW the broker gets his fees if he makes money or not. You people need to lighten up.

  • Report this Comment On June 05, 2009, at 5:19 PM, yazshane wrote:

    WOW, those are a lot of negative comments...

    I am so happy that I signed up for The Motley Fool, the first investment 'advice' that actually works!!

    Thanks Fools!

  • Report this Comment On June 05, 2009, at 5:28 PM, spdykat wrote:

    I agree with the posters and also with the author of the article. My gripe is, I'm a very very small-time would-be investor who rarely has much to invest, but I want to do so in an educated fashion. So I subscribed to the Fool, and then to the Insiders newsletter, but I never seem to learn anything; I just get more emails offering me greater tips if I'll just subscribe to one more thing. I spent more on the subscriptions than I had to invest in the first place so maybe I should have just stuck the money in a fund or something. I know they have to pay a lot of support staff and so on, but I just don't have the bandwidth to read endless teasers. And to mr. arrogant jerbojo up there, maybe I am a bottom feeder but I don't want something for nothing, I want something for what I've already paid.

  • Report this Comment On June 05, 2009, at 5:32 PM, JJ2929 wrote:

    I agree that we are all capitalists...

    I subscribed last year to two services and let them expire.

    The problem I had is that I got so much e-mail that for a long time I could not tell what was the teasers and what was not. I eventually concluded that the bulk of it was teasers and once a month each service produced it's monthly publication (like the pdfs), which had some value, but frequently left you guessing or hanging. There was not a tally board or spreadsheet that you could look back at previous recommendations to see where they stand or how they made out. There were some recommendations to buy, but I seldom saw recommendations to sell. And if I did it wasn't timely.

    And as a side note: Most of the e-mails (teasers?) are so verbose that it gets to be too much yada yada for me. Or like Charlie Brown and his teacher: wa, wa-wa, wa-waaaa. By the time I get through, I'm not sure what I read or why. Maybe I am too analytic.

    The services I paid for would also throw out e-mails during the month from time to time that weren't that useful.

    Nothing I have seen from TMF was specific enough on buys AND sells, and typically was not timely enough.

    Maybe what I need is the reallllly high priced Pro stuff they offer but I don't really have any confidence that it would be worth the money.

    That is my 2 cents worth. I spent the money. I learned a lesson.

  • Report this Comment On June 05, 2009, at 5:37 PM, JJ2929 wrote:

    I agree with spdykat completely.

    I also am a low $ investor. BUT, if I start making money and see some value, I can pull money out of the mattress (so to speak) and become a medium $ investor.

  • Report this Comment On June 05, 2009, at 5:47 PM, warrenrial wrote:

    Motley Fool is nothing more than a rip off.

  • Report this Comment On June 05, 2009, at 6:05 PM, goodgasun wrote:

    Agree with Spdykat: all sizzle and no sausage, which is why I won't renew my subscription. What's even more galling is that they will run surveys of subscribers asking, ever so sincerely, how they can improve. Never again!

  • Report this Comment On June 05, 2009, at 6:24 PM, robbglass wrote:

    Over-looking the sales pitch, I have 14% paper profits since last September ( 10 months ago ) which amply justifies my subscriptions.

    Despite gut-wrenching disappointment holding AIB, my portfolio has lately enjoyed its +13% contribution.

    Focus on your own portfolios' long-term development. You will then recognize the insignificance of petty irritations.

    Fool on !

    Rob Glass

  • Report this Comment On June 05, 2009, at 6:44 PM, bigroosterdaddy wrote:

    I agree with robbglass. I have enjoyed 32% returns with info culled from my TMF subscriptions since since last June.

  • Report this Comment On June 05, 2009, at 6:48 PM, up2mtns wrote:

    what a bunch of whiners.

    do you also complain when you walk into a store and a salesperson approaches you and starts talking to you about whatever it is you're looking at?

    Whenver I buy something from any online store, I start getting emails from them asap. You have the OPTION to turn OFF those emails.

    Go do that, and stop coming in here and whining like a bunch of little beotches.

    At least the Fool allows comments after their articles and doesn't hide what they're doing, or come in here and delete the negative ones.

    I don't read all the articles the Fool sends me, but when I do, I look forward to reading people's individual thoughts on the article. Instead, you've all wasted MY time by BITCHING and not even discussing the topic on hand.

    Free speech and all, but seriously, get lives.

    whiners, whiners, whiners.

  • Report this Comment On June 05, 2009, at 7:03 PM, racquetjack wrote:

    I got Foolish about three years ago. I learned a lot of basic stuff, followed sound advice and put my portfolio together. No complaints here.

    But about 18 months ago, the hype for getting into other segments of the Foolish Universe started coming up with more regularity. Now I will not renew, but did benefit from these years.

    The Fools need to review their marketing strategy!!!

  • Report this Comment On June 05, 2009, at 7:32 PM, BoilingOver wrote:

    MF's incessant hammering to make me buy something I thought I had already subscribed to and paid for is reaching the end of my patience. If it doesn't stop, I plan to cancel out. BoilingOver

  • Report this Comment On June 05, 2009, at 7:37 PM, isthattrue wrote:

    I have a comment. It will make you all rich! Please, all of you send me a dollar and I'll give you my comment!

  • Report this Comment On June 05, 2009, at 7:38 PM, jbonefish wrote:

    Goodness! I agree that the sales pitches get old but these pitches come at the end of credible content. Within the pay content I have found solid analysis and thought provoking dialogue that has helped me identify companies that fit my view of the present/future macroeconomic environment. Many of the stocks I learn about I feel are subject to risks i am not willing to take - so I pass.

    Do I wish the services weren't so fragmented? Yes. But I recognize (and so do they) that to achieve the relative return they are seeking they need intense focus and research in each of these areas which costs money. It is a good and sometimes annoying business model.

    Recognize the paradox: Most posting here are upset that they don't have access to all the servces for one fee. That tells me that they recognize the value in the content but don't want to pay for it.

  • Report this Comment On June 05, 2009, at 7:43 PM, isthattrue wrote:

    Well, I didn't get any dollars. But here is the comment:

    Buy low, sell high. To find out what stocks to do this with, you'll have to subscribe to my BUY LOW, SELL HIGH newsletter!

  • Report this Comment On June 05, 2009, at 7:49 PM, A7reader wrote:

    "why do all your articles end with a lead -in to another publication to buy?

    i'm done with motley fool when my current subscription ends!"

    My sentiments exactly.

  • Report this Comment On June 05, 2009, at 7:56 PM, chordas wrote:

    I have been up and down with the Fool community myself. The biggest bite was their undying dedication to TDFX, years ago, which cost me a bundle when they went belly-up.

    Then, I bought into their (rather) high-priced newsletters, only to get more offers for secret insider info....

    Frankly, since no one can really predict what will happen to the market, you may have the same odds buying the penny stocks in those spam emails that also clutter your inbox.

    I was a little annoyed, also, by MF when they automatically renewed a newsletter against my wishes and somehow successfully charged a CANCELLED credit card.

  • Report this Comment On June 05, 2009, at 8:13 PM, bebop111 wrote:

    As one peson noted above, you can always cancel--you do not have to wait for your subscription to run out (and you'll get a pro-rated refund).

    I don't mind these emails as much as I mind the fairly rigid buy-and-hold philosphy, the splintering of Wall Street into so many newsletters, and the high cost of subscribing to MF's best strategies (which means that those not subscribed in the $500-$1000 range have paid for services that are sub-optimal.

  • Report this Comment On June 05, 2009, at 8:35 PM, blackfootfool wrote:

    I responded to the invitations to subscribe. Now that I'm a subscriber, the continuing invitations are for other people. I don't have to read them.

    When I subscribed, my plan was to learn about investing, understanding markets, etc. I am assuming I will make mistakes, that some advice and opinions will not turn out to be completely accurate. I never intended to get "the secret" that would keep me from making mistakes.

    If my inbox gets too full, I delete things. Not everything gets read. I figure I'll learn something, I just won't learn everything. I won't live that long anyhow.

    So, off I go to enjoy the services I freely paid for. I'll add up my tips (from my job) for last month, review some of what I've learned from the fools, and take a plunge.

  • Report this Comment On June 05, 2009, at 8:58 PM, strovej1 wrote:

    You people are pathetic. Really. Motley Fool is a commercial venture. I find that they actually provide far more free information than most commercial business models would consider wise.

    The problem seems to be that many of the people who complain about being sold an analytical advisory service are not interested in learning, technique or work. They are only interested in being told what to buy. This is unfortunate. Mostly for them, though.

    For the most part, the market is a zero sum game: the winners take from the losers. People who insist on being told what to buy, but are either too lazy or too ignorant to understand what they are doing are doomed to be the losers. They should be with a competent financial advisor rather than pretending to try to do things on their own. Of course, they are not with an advisor because they don't recognize the value of good advice. They probably don't recognize the value of anything, but are just hangers-on in society looking for someone to take them by the hand and give them a fortune (and then brag that they did it themselves).

    Seriously, if you see value in any of Motley Fool's products, buy them. If you don't... then don't. Whining and complaining only makes you look cheap and ignorant.

  • Report this Comment On June 05, 2009, at 9:14 PM, GreenPhotog wrote:

    Just the Facts, Ma'am. Why subscribe to hyperbola when a publication reports how the market is dong 'til that very day. Try Investors Business Daily, Fools, and quit yer jawbonin'.

  • Report this Comment On June 05, 2009, at 9:41 PM, greatlakes62 wrote:

    Gardner brothers, you should pay attention to your constituency. The perception of Motley Fool has changed drastically over the years (and not for the better). You have become the Garmin of investment services. Far too many "products", which, like the multitude of GPS models available, make an intelligent purchasing choice difficult. I too find your "teaser" emails insulting as well.

  • Report this Comment On June 06, 2009, at 3:34 AM, psasso wrote:

    The Fool Million Dollar Portfolio was only open to 1000 people for a $500 annual fee. At 500K in annual fees do they really care how well their portfolio does? That is 50% annually even if the portfolio remains flat. Brilliant....could be an out and out scam with minimal resources spent on portfolio performance.

    I got sick of the cheesy pitches too, and canceled.

    Fool wise up and stop sending subscribers spam. Instead, at the bottom of every newsletter you could have ads for your other newsletters. Soft sell don't hard sell.

  • Report this Comment On June 06, 2009, at 5:56 AM, iflytandemrotor wrote:

    I have to say I agree with strovej1 (not that everyone's pathetic, but most the rest of it).

    What The Fool offers for free is pretty impressive. I have never subscribed to any newsletter except for the free stuff.

    It seems to me that when people skim The Fool website, they are looking for the majic stock pick.

    Out of all the people that have posted on here, how many have actually taken the time to read their free pages about the Investing Basics (http://www.fool.com/investing/basics/index.aspx?source=ifltn... ?

    I don't mean skim it, I mean, really read through it, take some notes, and use the notes to research what they have given you. I have and by using that information, I have practiced using their CAPS and have done well for the most part.

    The Fool is a business. So as a business, expect that they are going to tout their business. No one goes into business to fail...trust me, this economy helped put me out of two businesses simultaniously.

    I bet if The Fool was publicly traded, and we all had a slice of that pie, we would be all about the sales pitch...because it makes sales. Do you know why Coca-Cola is so popular? Because they figured out how to make sales and keep people interested in their product.

    Their author gave you more than what he said he would do. It gave you the 3 value traps and it gave you the three things to look for in the market. It was his opinion.

    Heck, I even use the FREE CAPS section to test my own theories out based on lessons from the FREE investment articles so I can track my stock wish list for FREE and then come here to their blog and give everyone else my opionion for FREE.

  • Report this Comment On June 06, 2009, at 6:54 AM, CallerNJ wrote:

    Guys,

    Some of you need to relax. I've been on several advisor sites, and although some are more advanced or offer very specialised (even guaranteed or money back) you've got to remember, you've still got to apply your own decision at the end of the day.

    You've got to take your techniques to the table. The site will only give you advise, ideas, info. You've got to make the decision. What did you really think when you signed up, that you'd get a staircase to riches because of a sure thing. You should all know by now that a sure thing does not exist. Death and taxes and all that.

    I think with MF you pretty much get what you pay for, it ain't the best, but it's not the worst. It's what you make it.

    If there's one speciality the Fool does I guess it's buy and hold, and value investing. Other's will be more earnings orientated or all about the trends, so take what you think is good for you. If your stock has bombed, it's because half your picks will be bombs in the S-T anyways. Usually over the L-T value investing works. But you'll always get the exceptions. Believe me, I've been there, still am on some of them.

  • Report this Comment On June 06, 2009, at 6:55 AM, wuff3t wrote:

    Hallelujah! Thank goodness for strovej1 and iflytandemrotor telling it like it is. Most of the comments on here do seem to stem from people who want free and infallible tips. Well, there are no infallible tips and if there are you're not going to get them for free.

    The most disheartening comment was: "So I subscribed to the Fool, and then to the Insiders newsletter, but I never seem to learn anything..."

    If that's true then you're just not reading the newsletter or the articles. There is a wealth of education available on this site, and the paid newsletters are split because different people have different investing styles and the newsletters are designed to suit those different needs.

    "There was not a tally board or spreadsheet that you could look back at previous recommendations to see where they stand or how they made out..."

    Er, yes there is...

  • Report this Comment On June 06, 2009, at 10:20 AM, wnt2bnla wrote:

    I have NEVER made any money from this advice. In fact I have LOST money and quite a bit of it. Why don't you test it. Create a portfolio of the stocks they recommend and track their value. Don't buy any just create the portfolio with say a 100 of each stock and watch the overall value of your dummy account decline.

  • Report this Comment On June 06, 2009, at 11:46 AM, briboe wrote:

    We really upsets me is MF keeps marketing off 3 or 4 good stock picks from 2002-2003. But look at their track the last 5 years, or worse yet, the last 2 years. It is brutal.

    The way the market has changed the last 2 years, by the time you get their newsletter, it is obsolete and worthless.

    As a owner of several small businesses myself (including being a CPA and small business consultant), I have to laugh at the comments by one of the MF staff above about paying staff, utilities, Verizon bills, etc. Sounds like they don't know how to run their own business. Provide a simple, honest, up to date, quality service at a reasonable price and you won't have to spam everyone for more money. So far your service is none of these.

  • Report this Comment On June 06, 2009, at 12:46 PM, jvinvest wrote:

    I am a subscriber. A few years ago, I started buying top rated mutual funds and less stock. My picks from Inside Value and Stock Advisor did not meet my expectations but they did better than those mutual funds. When it rains hard, everything gets wet.

    No one forces anyone to read advertisements. I have gained much knowledge from the free and paid services and will continue my subscription.

  • Report this Comment On June 06, 2009, at 2:39 PM, gmogros wrote:

    I let my subscription expire after a very frustrating experience with lots and lots of spam.I don't need a free service.

    But if I subscribe, I want sound advice. No sales and teasers.

    When the Fools will have a single fund, I might consider renewing my subscription. Meanwhile, I save a lot of time reading nothing.

    Good luck all you suffering fools.

  • Report this Comment On June 06, 2009, at 2:52 PM, JulianDate wrote:

    The "value traps" article was a wake-up call for yr. hmbl. srvnt., who has a position in C. I was especially alarmed about C's 444% debt to equity, so I did a quick sector comparison and found the following: GS: 466%; JPM: 460%; MS: 401%; BAC: 396%; WFC: 301%. Sector average: 396%.

    I don't disagree that C is a risky investment. I have it discounted 75% against a pre-bubble, 2005 target price of $40, but my forecast ROI (at a buy price of $2.72) is still 368%. And I'm up 27% YTD.

    Thanks for the warning, but I think I'll hang on for a while longer.

  • Report this Comment On June 06, 2009, at 3:50 PM, lorrieannegee wrote:

    I thought it was just me that felt this way. The Fools are another Show About Nothing`. But with no sense of humor. It takes too long to read and all you end up with is another sales pitch that has another sales pitch etc, etc...............

  • Report this Comment On June 06, 2009, at 5:20 PM, moneill22 wrote:

    I have read most of the above with interest and, as a Brit living in Spain, feel I am able to offer my 2 euros-worth without fear of appearing partisan. I have been a fool member (MFSA) since 2003 and have learnt a great deal about investing US-style during that time. In 2007, I decided to pay the extra for Million Dollar Portfolio and, guess what?, lost quite a bit! There used to be an American joke going around in the seventies: “You wanna know how to make a small fortune? Take a large fortune and invest it in the British car industry”. Well MDP felt like that for quite a while, and even now is well below its starting value. But when I look at my other funds, pensions, Fidelity etc, the MDP recommendations overall are down less. More importantly, I know that I have bought into some solid companies at rock-bottom prices and that, three or so years from now, they are going to form the basis of a valuable portfolio. That’s all from here except to say thanks to your President for making us Brits feel a bit of pride during what is otherwise a bad time for us.

  • Report this Comment On June 06, 2009, at 9:42 PM, Regnofbob wrote:

    I would rather read some positive comments with sugestions instead of negative comments without any negative sugestions.

    Regnofbob

  • Report this Comment On June 06, 2009, at 9:46 PM, jokernaught wrote:

    I,too, find the very frequent add-another- subscription

    annoying and bordering on dishonest advertising. The initial subscription I bought and paid for was not advertised as vol.#1, down payment.

    If the info continues in this fashion, I won't be renewing.

  • Report this Comment On June 06, 2009, at 11:17 PM, grantzzz wrote:

    Absolutely.....The sleazy `newsletters` use this same `come on` format. What kind of `fool` would send hucksters like these their money?????? If these guys really are legit, they must have incredibly poor judgement to adopt this marketing strategy. I wonder if that `poor judgement` is evident in their stock picks too????

  • Report this Comment On June 07, 2009, at 2:07 AM, psasso wrote:

    To iflytandemrotor , Coca-Cola would never inundate people with spam. They know that would be bad for business. This is what MF needs to learn.

  • Report this Comment On June 07, 2009, at 2:26 AM, iflytandemrotor wrote:

    Psasso,

    I agree. I guess I just ignore spam easier.

    But go to www.coca-colastore.com. If it can be done, they put a Coca-Cola logo on it. Wait...that's called branding.

    They are just old school spam. I have been to some of the poorest countries in the world and I still manage to see a t-shirt, hat, or billboard with the Coca-Cola logo.

    Anyone know where I can get a Motley Fool T-shirt? Maybe a Fool lamp...or a Fool refridgerator? Maybe they will give away a Fool refridgerator during their next contest....or a woman's thong with the Fool logo on the front.

    HA! I crack me up!

  • Report this Comment On June 07, 2009, at 2:28 AM, iflytandemrotor wrote:

    Oh yea...and the Coca-Cola dining set is only $1,299.

  • Report this Comment On June 07, 2009, at 8:29 AM, wuff3t wrote:

    "We really upsets me is MF keeps marketing off 3 or 4 good stock picks from 2002-2003. But look at their track the last 5 years, or worse yet, the last 2 years. It is brutal...."

    Briboe, TMF's strategies are largely based around long-term investing, so it makes sense that their adverts reflect this - after all it would look suspicious if they promoted long-term investing but couldn't produce any examples that this really worked, wouldn't it? Or that their more recent picks had performed better than their older ones?

    As for their recent track record there are very few people who haven't been savaged by the market; the more recent the timeframe you look at, the worse everyone's performance has been.

  • Report this Comment On June 07, 2009, at 9:31 AM, ReillyDiefenbach wrote:

    "There were some recommendations to buy, but I seldom saw recommendations to sell. And if I did it wasn't timely."

    Bingo. Any moron can pick good stocks. It's when to sell when things go sideways which is utterly absent from any and all MF subscriptions.

    R.I.P. buy and hold, died A.D. 2008

  • Report this Comment On June 07, 2009, at 10:28 AM, briboe wrote:

    wuff3t - check out the post right below yours. The market has changed rapidly, and information has to be timely. In a bear market, you can't keep recommending buying stocks. There are a lot of other financial advisors who recommended being mostly in cash, buying inverse ETF's, buying gold, etc...while MF kept recommending to buy, buy, buy.

    And ReillyD...is correct, any moron can pick good stocks. On my own, I bought some Sirius at 6 cents per share, and sold it at 53 cents per share - what's that, like 800% return. But I made a lot of bad picks too. So if I market my one brilliant pick, and not the bad ones, am I a stock expert now? That's essentially what MF is doing.

  • Report this Comment On June 07, 2009, at 10:32 AM, briboe wrote:

    One more point wuff3t which I forgot to add. My point on my good stock pick was any idiot (including myself) can have awesome returns when they pick stocks near the bottom of a bear market, without advice from anyone. If you bought a bunch of stocks in March, you are bound to have picked some that are up 100-200% or more. I picked several that are up 200-300% since March.

    With all of the stocks that MF picked near the bottom of the bear market in '02, it's no surprise that they picked a few winners. Anyone can do it.

  • Report this Comment On June 07, 2009, at 11:12 AM, wuff3t wrote:

    briboe,

    I have to disagree with those comments. Firstly TMF does make recommendations to sell, but only when a company's fundamentals have changed. That's entirely consistent with their strategy, which is to pick companies with solid fundamentals and hold for the long-term. With a strategy like that there will inevitably be few sell recommendations, regardless of market fluctuations (even if those fluctuations are really savage) as they are not going to make sell recs unless the company's fundamentals have changed. Why would you? If you believe in a company then selling just because there's a bear market and temporary drop in share price makes little sense.

    Regarding your point about buying during a bear market and then citing performance, I agree that could be seen as more valid. The supporting evidence for TMF's strategy though is that they can cite picks that are huge gainers during an extended period in which the S&P has remained flat. Anyone buying in March and sporting gains (I did so myself) has to an extent only benefited from an overall rise in the market as a whole. TMF can demonstrate picks that are big gainers despite now going through TWO bear markets: I disagree that anyone can do that - the S&P's overall return during that period suggests that on average it's not that easy.

    In TMF's defence they also give very visible evidence of the overall performance of every one of their newsletters (Stock Advisor, for example, is I think beating the S&P by about 40% right now over the period of its existence). Of course they're going to highlight their best picks - but they don't claim to get it right every time, either. Anyone can see the sort of overall returns they're going to get by subscribing to a newsletter, if they're prepared to spend a few minutes reading the free section of the website.

    Can any moron make money in a bear market rally? Perhaps (actually I suspect even that isn't true, and that plenty of people manage to lose money doing so - many companies are found out in bear markets and disappear into bankruptcy) but TMF advocates buying and holding shares over the long-term. That means buying during bull markets as well, and as bull markets on average last much longer than bear markets they can't really be accused of hiding behind their bear market results.

    Anyway, I hope your "March winners" keep gaining for you, regardless of whether we disagree about the Fool!

  • Report this Comment On June 08, 2009, at 4:27 AM, 4Magoo wrote:

    Wow... There are some pissed off people here. I realize that one has to do some work after you read some of the Fool stuff but if a real fool could make money by just reading one page of hype... we would all be rich. I subscribed to only ONE of their newsletters and am up about 25% for the year. If you don't like their service, just unsubscribe and go else where for your "get rich quick schemes." Making money is not easy it is hard. Remember, for you to make money in the market, someone else is losing that money to you. It is like a game of poker. We all sit at the same table but only those that count the cards and play the odds walk away with the money.

  • Report this Comment On June 08, 2009, at 10:15 AM, Xitopie wrote:

    First off, if you are looking to make investment decisions from a free email subscription you better rethink your strategy for managing your money pal!

    I can only conclude that

    a) you are too cheap to pay for worthy advice

    b) too lazy or don't have time to do research

    c) no clue what you are doing and need someone to tell you

    d) you still believe in Santa Claus

    e) you are the bigger fool (small f )

    f) all of the above.

    Agree with many, MF emails and their service have to change... I too was a former subscriber and don't see any more value on their newsletters (at $199, $149, or even $99) than what I can get from a $10 subscription to Kiplinger's.

    MF are you listening???

  • Report this Comment On June 08, 2009, at 9:10 PM, rbj13076 wrote:

    The heading was 3 value traps to avoid. Just scroll down to the 3 stocks. So what if they advertise something. They gave you what they said they would.

  • Report this Comment On June 09, 2009, at 8:36 AM, bulryder wrote:

    I am a new member also and after having had a few other member ships they all seem to be the same as to advertisng.Advice for Investors.Oxford Club,Top Stock Analyst,Buy Sell Advisor,Shaeffers Investments.etc,ets. I try one for a while,get sick of the constant advertising and then try another.The best one to date is Investors Digest,straight up reporting,minimal advertising and delivered to your mailbox every two weeks. Good Hunting and may the index Gods be on your side Bulryder

  • Report this Comment On June 17, 2009, at 3:43 AM, votrehomme wrote:

    What I hear people complaining about more than anything are the pitches IN THE TEXT. This may be grating because of the sudden shift between content / fact presentation and advertising. It doesn't really bug me like it obviously does a lot of people. But I have read about twenty more times than I needed about Gardner's realization 15 years ago. It just gets old.

    Maybe TMF needs to listen to the level of annoyance being generated. Try some small, different things. Nobody responding here complained about the ads at the top and on the sides ... how about moving the ad content there? Maybe just a divider line between the content and the ad, or even just a simple phrase like the old, "Now a word from our sponsors" to let people make that mental shift. Would the advertising really be that much less effective if it was set apart as "advertising"?

  • Report this Comment On July 21, 2009, at 12:22 PM, wintrwman wrote:

    Cons to TMF: writing is too cute, too wordy, and tedious.

    Just give me the facts, like 1. 2. 3. Wastes time & $

    Pros to TMF; has some good suggestions and good rationale.

    Suggestion: briefly describe each subscription service and stick to the mission.

    Thnx for op to comment.

  • Report this Comment On August 12, 2009, at 8:42 PM, beawinner2 wrote:

    What votrehomme said.

    I liked the article but these always leave you wanting, but that's the idea, to sell more stuff to readers.

    They have to want more.....

    PS - some good content makes it worth reading.

  • Report this Comment On August 13, 2009, at 12:10 PM, fxhands1 wrote:

    I would agree with the comments about another scam for more money via yet one more news letter. However there are plenty of articles free of charge that have made me smarter with my over all investing. Nothing is perfect.

  • Report this Comment On January 02, 2010, at 12:37 PM, sayyousayme wrote:

    critics everywhere! It seems no matter the business,

    for profit or not, all some folks can glean is rot rot rot.

    Yet if it were they who ran tmf would they do it better?

    Probably not. Would they do it worse ? Probably not.

    Would they do some things differently ? Probably!

    If one has some real constructive well thought out and

    researched improvement ideas then it's great to suggest them; however if not,, where's the value in

    ranting on and on and on generally in a pointless

    negative manner ?

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