One of the primary goals of any investor who buys stocks should be to beat the broader market's performance. But that's easier said than done, considering the S&P 500's historical annual return of nearly 10%.
Since their inceptions in 2004, both the Motley Fool Inside Value and Motley Fool Hidden Gems newsletters have consistently beaten the market. In fact, Hidden Gems members have enjoyed an average return of more than 59%, beating the S&P 500 by nearly 7 percentage points as of this writing. And Inside Value members have enjoyed total returns of 46.3%, crushing the market by over 16 percentage points in the process (returns as of 2/23/2017).
But Inside Value and Hidden Gems have separately accomplished this feat using two distinct investing methodologies. So what makes them different, and which stock newsletter is the best fit for you?
How Inside Value finds the cheapest stocks on the market
First, longtime Motley Fool analyst Rich Greifner serves as lead advisor for Inside Value and is supported by his team, including advisor Philip Durell and analysts Rana Pritanjali and John Rotonti. And Rich, for his part, has worn many hats at the Fool, lending his investing talents to other services, including Stock Advisor, Rule Breakers, Hidden Gems, Rule Your Retirement, Champion Funds, Million Dollar Portfolio, Deep Value, and Motley Fool One.
Just like it sounds, Inside Value focuses specifically on the tenets of value investing -- that is, the process of identifying and buying a stock for less than it's worth. And more specifically, Inside Value primarily aims to find high-quality companies whose shares sell at a discount relative to their true value.
So what do these businesses look like to the Inside Value team? More often than not, they bear the following four characteristics:
- Sustainable competitive advantages such as strong brands, cost advantages, and network effects.
- A sound financial profile, including diversified revenue streams, a strong balance sheet, and consistent free cash flow generation.
- A strong, shareholder-friendly management team.
- By definition of a "value investment," stocks with an attractive margin of safety relative to the team's fair value estimate.
As for the actual stock picks, Inside Value provides at least one investment idea every month, as well as its own monthly list of "Best Buys Now" -- that is, typically five or six value stocks from its existing recommendations that the team believes represent the biggest bargains at the time. Inside Value also regularly offers any sell recommendations as needed, as well as real-time coverage to keep subscribers informed of the latest developments regarding its universe of value stock picks.
How Hidden Gems identifies the best small stocks that others miss
Meanwhile, Hidden Gems is led by co-advisors (and longtime Fools) Seth Jayson and Andy Cross, who are supported by their own team of exceptional analysts. Together, the Hidden Gems team specializes in finding and recommending undervalued small-cap companies -- those roughly defined, but not strictly limited to, businesses with a market capitalization of less than $2 billion -- with the potential to generate significant capital gains while taking a reasonable amount of risk.
In keeping with The Motley Fool's broader, long-term investing philosophies, Hidden Gems also looks at its potential recommendations through a long-term lens. The service aims to hold stocks for at least three years but ideally wants to find companies it can buy and hold forever. As a happy consequence of this long-term mentality, Hidden Gems does not attempt to "time the market" or engage in frequent trading.
Speaking to that "reasonable amount of risk," Hidden Gems subscribers should keep in mind that in exchange for greater potential returns, shares of these smaller companies tend to be more volatile than their larger, more stable counterparts. However, the Hidden Gems team also knows that this risk and volatility often creates opportunities for patient, long-term investors to buy these small-cap stocks at attractive prices.
To help smooth things out and diversify, Hidden Gems also believes its members should practice regular investing. That means putting money to work at least once per month to buy one or two stocks that appeal to you, and ultimately building a strong portfolio of at least 20 stocks recommended by the newsletter -- a task simplified by its own annual list of "Core" portfolio stocks, monthly "Best Buys Now," two new recommendations each month, as well as regular updates on any stocks they believe should be sold, or put on "hold" given temporary concerns.
You can start crushing the market today!
Whether you share Motley Fool Inside Value's zeal for buying shares of undervalued businesses, or instead identify with Motley Fool Hidden Gems' knack for investing in small companies with big potential, both services offer a compelling way for you to not only consistently beat the market over the long term, but also to continuously grow your understanding of the investing world.
Best of all, you can sign up for either -- or both -- at a special introductory rate right now. Rather than paying the usual price, take advantage of this offer and click here to pay as little as $53 per year for Motley Fool Inside Value. Or you can click here to pay as little as $53 per year for Motley Fool Hidden Gems. Either way, it could mark the beginning of your journey to life-changing wealth.
The Motley Fool has a disclosure policy.