Stock Newsletters: Motley Fool Stock Advisor vs. Rule Breakers

By Motley Fool Staff Markets Fool.com

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%.

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Yet for more than a decade, both theMotley Fool Stock Advisor and Motley Fool Rule Breakers newsletters have consistently beaten the market. In fact, since Stock Advisor's inception in 2002, the average pick has more more than tripled the 63% return achieved by the S&P 500. And Rule Breakers members have enjoyed an average return of nearly 88% since its launch in 2004, leading the market by almost 35 percentage points.

But Stock Advisor and Rule Breakers have accomplished this feat using two distinct investing methodologies. So what makes them different, and which stock newsletter is the best fit for you?

What sets Stock Advisor apart

At the helm of Stock Advisor are Motley Fool co-founders Tom and David Gardner, and each has a talented team of analysts who help them pick stocks for the service. Every month, Team David and Team Tom each recommend a new stock -- or re-recommend one of their previous picks -- that they believe Stock Advisor subscribers would be wise to consider buying. At the same time, they offer updates as needed on previous picks that they believe should be sold and put on "hold" any businesses suffering from what could be temporary concerns.

In addition, once per month Team Tom and Team David each provide a list of their own "Best Buys Now," consisting of five companies from their pool of existing Stock Advisor picks that represent timely buying opportunities for new investing dollars. Stock Advisor also maintains a list of "Starter Stocks," or essential companies that they believe can form the foundation of any portfolio.

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There are several overarching principles that guide the Stock Advisor approach:

  • Buy businesses, not tickers. Recognize that underlying the ticker symbols are actual businesses generating revenue and profits from real products.
  • Be a lifetime investor. Take a long-term view of investing, which means keeping tabs on the news, earnings reports, and industries surrounding the stocks they recommend.
  • Diversify. Building a diversified portfolio not only helps protect against volatility but also helps Stock Advisor members sleep better at night.
  • Fish where others aren't. Don't follow the crowds, which means thinking for yourself and doing your own research.
  • Check emotions at the door. Be prepared to calmly weather, understand, and potentially take advantage of big swings in the share price of your stocks.
  • Keep score. Stock Advisor members have access to the performance of all previous picks at any time, dating back to David's and Tom's earliest recommendations in 2002.
  • Be Foolish (with a capital "F") and have fun. Investing isn't as hard as it sounds. Stock Advisor believes individual investors can do better than their brokers and enjoy themselves along the way.

Team Tom and Team David also employ their own separate methods to fine-tune this approach.

Team David, for example, looks for companies that are not only poised to benefit from "undeniable, long-term trends" but also have a certain level of "unquantifiable greatness" -- that is, some sort of secret sauce that gives them an edge and often consequentially wins the love of consumers. David also wants to be able to get in early on these great businesses and has no problem adding to his positions as they keep winning over the long term.

Team Tom looks first for great companies operating in beaten-down (but still relevant) industries. He also seeks those with strong financials and a proven business model, as well as shareholder-friendly management team. Signs of the latter often include high levels of insider ownership and reasonable compensation structures.

How Rule Breakers lives up to its name

Meanwhile, David Gardner simultaneously wears the hat of Chief Rule Breaker, where he leads another team of analysts for the newsletter of the same name.

But in contrast to Stock Advisor's more open-ended approach, Rule Breakers seeks to find 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.
  • Again perhaps counterintuitively, Rule Breakers also loves stocks that are widely considered "grossly overvalued," which helps weed out the "obviously great" companies that are overvalued.

Similar to Stock Advisor,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 the top five timely investing opportunities taken from its pool of open recommendations. Rule Breakers also similarly maintains its own list of Starter Stocks to help members form the foundations of their growth-stock portfolios.

You can start crushing the market today!

Whether you favor Motley Fool Stock Advisor's two-team approach or share Motley Fool Rule Breakers' hunger for growth, both services offer a compelling way for any investor 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 Stock Advisor. Or you can click here to pay as little as $53 per year for Motley Fool Rule Breakers. Either way, it could mark the beginning of your journey to life-changing wealth.

The Motley Fool has a disclosure policy.