One of the primary goals of any investor who buys stocks should be to beat the broader market's performance. But that's harder than it sounds, considering the S&P 500's historical annual return of nearly 10%.
Yet since their respective launches in 2004, both the Motley Fool Income Investor and Motley Fool Inside Value newsletters have consistently beaten the market. More specifically, the average Income Investor pick has climbed 44.6%, beating the market by 3 percentage points in the process. And Inside Value members have enjoyed average returns of more than 46%, trouncing the market by nearly 16 percentage points along the way (returns as of 3/9/2017).
But Income Investor and Inside Value have accomplished this feat using two distinct investing methodologies. So what makes them different, and which stock newsletter is the best fit for you?
How Income Investor seeks to make money
First, Income Investor is led by advisor and CFA, Michael Olsen, who previously worked on other Motley Fool services including Million Dollar Portfolio, Inside Value, and Special Ops. Michael is supported by two talented analysts in Paul Chi and Rana Pritanjali. Their primary goal through Income Investor is to find high-quality companies that can grow their dividends over time.
That said, there's no definitive guide for what makes an ideal Income Investor stock. But the team does prioritize three ends: wealth preservation, capital appreciation, and -- just as its name implies -- income.
"When viewed through that filter," Michael writes, "dividend investments are well-suited: they've consistently registered the best risk-adjusted returns across long periods of time."
Drilling down further, Income Investor hones its approach to dividend investing with the following guidelines:
- Income Investor picks must pay a regular dividend. Across all recommendations, the team targets a 3% yield on average (some higher, some lower).
- Generic businesses won't do. Income Investor loves superior, differentiated companies with wide competitive moats, and those that offer "must-have" services and products.
- Seeks "stealth value." Income Investor doesn't just look for "value" or "growth" stocks, but rather wants to find "good companies whose potential isn't quite appreciated or is the subject of temporary disdain." Similarly, the team tries to finds moats that are less obvious and continuing to grow. This often means looking closely at underappreciated small-cap and mid-cap stocks.
- Partnering well. Finding companies whose management teams have a track record of capable capital allocation.
- Considering less conventional dividends. For example, this can mean looking at "dividend compounders," or companies that might pay a small dividend but have significant room to grow their payouts over time.
- The Income Investor team strives to "remain anchored" by being brutally honest with themselves and avoiding attempts at being smarter than they are. As Michael puts it, "We're firmly committed to remaining within our circle of competence."
When all is said and done, Income Investor utilizes this approach to provide members with one investment idea each month, ongoing coverage of its ideas in real time, weekly updates with a recap of the past week's news, and an enviable message-board community with some of the best investing conversations the internet has to offer. Income Investor also maintains its own lists of Buy-Rated stocks, representing companies whose shares it believes are attractive investments today, and a list of "Best Buys Now" to offer investors a handful of other promising ideas each month.
Finally, in keeping with the Fool's long-term investing methodologies, Income Investor encourages members to own their stocks with a long-term mentality and avoid frequent trading. This is, after all, the best way to allow the magic of compounding returns to do its work.
How Inside Value seeks the market's cheapest stocks
Meanwhile, longtime Motley Fool analyst Rich Greifner serves as lead advisor for Inside Value, supported by his team including advisor Philip Durell, analyst John Rotonti, and analyst Rana Pritanjali. And that's not a typo: Rana shares her investing talents with both Inside Value and Income Investor! And Rich, for his part, has worn many important hats at the Fool, working previously on services including Stock Advisor, Rule Breakers, Hidden Gems, Rule Your Retirement, Champion Funds, Million Dollar Portfolio, Deep Value, and Motley Fool One.
As for the goal of the service, Inside Value focuses specifically on the tenets of value investing -- that is, the process of identifying and buying stocks for less than they're worth. Put another way, Inside Value primarily aims to find high-quality companies whose shares sell at a discount relative to their true value.
More often than not, those companies share 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.
- Stocks with an attractive margin of safety relative to the team's fair value estimate for the underlying business.
It's no coincidence that Inside Value's list shares several items with the above-described methodology implemented by the Income Investor team. Along the same lines, Inside Value also offers its own regularly updated list of "Best Buys Now," at least one new buy recommendation on a monthly basis, and any sell recommendations and other real-time coverage to keep subscribers informed with what's happening within their universe of stock picks. And of course, Inside Value provides access to its own message-board community to foster enticing investing conversations.
Start trouncing the market today!
Whether you share Motley Fool Income Investor's love for dividends, or identify with Motley Fool Inside Value's knack for buying stocks for less than they're worth, both services offer compelling methodologies for any investor seeking to both consistently beat the market over the long term and continuously grow their 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 a significant discount to list price for Motley Fool Income Investor. Or you can click here to pay a significant discount to list price for Motley Fool Inside Value. Either way, it could mark the beginning of your journey to life-changing wealth.