One of the primary goals of any investor who buys stocks should be to beat the broader market's performance. But that's no easy feat considering the S&P 500's historical annual return of nearly 10%.
Yet both the Motley Fool Rule Breakers and Motley Fool Income Investor newsletters have consistently beaten the market since their respective launches in 2004. From Rule Breakers' inception, for example, its members have enjoyed an average return of nearly 96%, crushing the market by nearly 40 percentage points. And the average Income Investor pick has climbed 44.6%, beating the market by 3 percentage points in the process (returns as of 3/9/2017).
But Rule Breakers and Income Investor have generated these strong returns using two separate investing methodologies. So what makes them different, and which stock newsletter is the best fit for you?
How Income Investor aims to make you money
First, Income Investor is led by advisor Michael Olsen, CFA, who previously worked on other unique 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. Together, their primary goal through Income Investor is to find high-quality companies that can grow their dividends over time.
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 even further, Income Investor hones its approach to dividend investing as follows:
- 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.
- Seek "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, which means 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 currently 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 succinctly puts it, "We're firmly committed to remaining within our circle of competence."
When all is said and done, Income Investor harnesses 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 -- in addition to its primarily monthly stock pick -- 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 the best way to allow the magic of compounding returns to do its work.
How Rule Breakers goes its own way
Meanwhile, Motley Fool co-founder David Gardner wears the hat of Chief Rule Breaker, where he leads a familiar team of analysts including longtime Fools Karl Thiel, Rick Munarriz, Tim Beyers, Aaron Bush, David Kretzmann, and Simon Erickson.
But rather than focus specifically on dividend-paying stocks, Rule Breakers takes a broader look at underappreciated growth stocks with strong management teams and sustainable business strategies. To consistently accomplish that goal, the Rule Breakers team looks for the following six attributes in a business:
- Innovative leaders that have moved early to capture emerging industries.
- Sustainable competitive advantages thanks to business momentum, intellectual property, visionary leaders, or a lack of viable competition.
- Perhaps counterintuitively, companies whose shares have a history of past price appreciation. These are winners that keep on winning, and with stock prices that tend to follow suit.
- Strong management teams and smart backing.
- Strong branding and consumer appeal.
- Another potentially counterintuitive point, Rule Breakers loves stocks that are widely considered "grossly overvalued," which helps weed out the "obviously great" companies that are overvalued.
Similar to Income Investor, the Rule Breakers team offers two new stock recommendations each month, any sell recommendations as needed, and its own monthly growth-centric "Best Buys Now" list of timely investing opportunities taken from its pool of open recommendations. In addition, Rule Breakers maintains a list of "Starter Stocks" to help members form the foundations of their growth-stock portfolios, as well as its own message board community bursting with stimulating investing conversations.
Start crushing the market today!
Whether you identify with Motley Fool Income Investor's dividend-centric approach, or instead share Motley Fool Rule Breakers' hunger for growth, 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 Rule Breakers. Either way, it could mark the beginning of your journey to life-changing wealth.