Investors know that the stock market has produced potentially life-changing wealth over the past nine years for those who were willing to take the risk to claim it. Even those who invested in simple vehicles that tracked the performance of popular market benchmarks like the S&P 500 have enjoyed monumental returns since the financial crisis in 2008 and early 2009.
But even though the S&P 500 has had good returns, it has its flaws. That's why The Motley Fool set out to develop its own alternative benchmark. Its answer: the Fool 100 Index, which for the first time opens the door to many of the stock picks that have helped generate substantial market outperformance over the course of The Motley Fool's history.
What's in the Fool 100?
The concept that led to the creation of the Fool 100 index is one that countless investors have sought to achieve: find a set of companies that will produce better returns than their peers and invest in them. More specifically, by focusing on the companies that have the best fundamental business models, the top innovative products of the highest quality, and the most forward-looking leadership at their helm, those who invest for the long run can outperform what they'd get simply by blindly investing in a less discriminating market benchmark.
The Fool 100 index seeks to do just that. Rather than simply buying every stock in the market, the Fool 100 uses a set of criteria to narrow down the stock universe and choose those companies that have the best chance of delivering the returns you want for your portfolio. To be included in the Fool 100, a stock must meet two tests:
- Be incorporated in the U.S. and listed on a U.S. stock exchange.
- Be an open buy recommendation in one of five Motley Fool research publications, or rank among the top 150 U.S. stocks in the Fool IQ stock research database.
The index then includes the 100 largest companies that meet this test, and weights them according to their market capitalization.
How the Fool 100 gives investors a solid mix of stocks
Because of the nature of The Motley Fool's research services, the Fool 100 has a definite tilt toward technology stocks. That's consistent with the Fool's focus on innovation.
But in terms of diversification, the fact that the Fool 100 draws from five very different publications provides stocks that have very different characteristics that investors of all types can appreciate:
- Motley Fool Stock Advisor was The Motley Fool's first subscription service and seeks to find stocks of all types that have the best chance of outperforming the market over the next three to five years.
- Motley Fool Rule Breakers aims to find high-growth stocks before the rest of the market discovers them. Top picks include companies that are early adopters in emerging industries that have the potential to become leaders given time.
- Motley Fool Hidden Gems drills down on the smaller side of the stock universe, finding small-cap stocks with the best potential for long-term growth.
- Motley Fool Income Investor meets investors' need for portfolio income, looking at investments that pay dividends or make other types of regular income distributions to their shareholders.
- Motley Fool Inside Value follows the same investing tenets as market masters like Warren Buffett and Benjamin Graham, seeking out stocks whose prices don't reflect their true value.
These five services have each come out with dozens of stock recommendations over their histories, and while there's a little overlap, the net result of drawing from all of these publications is a group of index constituent stocks from across the market that share one thing: a drive for excellence and the means to strive toward achieving their full potential.
Keep your eye on the Fool 100
Just because a stock is in the Fool 100 Index doesn't mean that it's guaranteed to go up. In fact, the index is certain to have losing stocks in it. The goal of the Fool 100 is simply to avoid the obvious mistake of choosing stocks with inferior business models, poor leadership, subpar products, and a lack of vision that prevents them from participating in the success of the stock market over the long haul.
To find out more about the Fool 100 index, including some of The Motley Fool recommendations that have made it into the benchmark, you can visit the Fool 100 website. It's your opportunity to follow the stocks The Motley Fool has on its radar and to gain perspective on the thought process behind the recommendations that its publications make.
The Motley Fool has a disclosure policy.