Battle Royale: Motley Fool Stock Advisor vs. Income Investor

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 AdvisorandMotley Fool Income Investornewsletters have consistently beaten the market. In fact, sinceStock Advisor's inception in 2002, the average pick has more than tripledthe 68% return achieved by the S&P 500. And Income Investormembers have enjoyedan average return of nearly 46% since its launch in 2003, beating the market by a more modest 4% (returns as of March 7, 2017).

ButStock Advisorand Income Investorhave accomplished this feat using two distinct investing methodologies. So what makes them different, and which stock newsletter is the best fit for you?

IMAGE SOURCE: THE MOTLEY FOOL.

How Stock Advisor has crushed the market

At the helm ofStock Advisorare 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 believeStock Advisorsubscribers 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.

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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 existingStock Advisorpicks that represent timely buying opportunities for new investing dollars. Stock Advisoralso maintains a list of "Starter Stocks," or essential companies that they believe can form the foundation of any portfolio.

There are several overarching principles that guide theStock Advisorapproach:

  • 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 helpsStock Advisormembers 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 Advisormembers have access to the performance ofallprevious 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 Advisorbelieves 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 first looks 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 teams. Signs of the latter often include high levels of insider ownership and reasonable compensation structures.

How Income Investor can get you paid

Meanwhile, Income Investoris 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 top-notch 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.

With the caveat that there's no definitive guide for what makes an ideal Income Investor stock, the team prioritizes three ends: Wealth preservation, capital appreciation, and 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 Investorloves 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 those companies that might currently pay a small dividend, but have significant room to grow their payouts over time, often because they operate in less mature industries with long runways for growth.
  • TheIncome Investorteam 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."

Similar to Stock Advisor, when all is said and done,Income Investorharnesses 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 and Best Buys Now.

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.

Start beating the market today!

Whether you favorMotley Fool Stock Advisor's two-team approach, or shareMotley Fool Income Investors' zeal for dividends,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 andclick hereto pay as little as $53 per year forMotley Fool Stock Advisor. Or you canclick hereto pay as little as $53 per year forMotley Fool Income Investor. Either way, it could mark the beginning of your journey to life-changing wealth.