September 5, 2014

Can investing be a lucrative game? Brothers David and Tom Gardner founded the online investment advisory service, The Motley Fool, in 1993 to help people become better investors while having fun doing it. 20 years later their Stock Advisor growth and value portfolios have beaten the market by a wide margin. We’ll talk with “Head Fool”, Co-Founder and CEO, Tom Gardner, about their unusual approach and impressive track record.

CONSUELO MACK: This week on WealthTrack, what explains the ageless appeal of the Motley Fool? Like its Shakesperean namesake, The Motley Fool’s co-founder Tom Gardner believes the wisest investment advice both instructs and entertains. Why it has also beaten the market is next on Consuelo Mack WealthTrack.

Hello and welcome to this edition of WealthTrack, I’m Consuelo Mack.

Since our founding ten years ago WealthTrack’s mission has been to help you and us build financial security through long-term diversified investing.

We have carefully chosen our guests to make sure they are among the best in the business, based on their philosophy, process, performance, appraisal by independent sources, peer recognition and reputation for integrity. We also have to like them. There is a no jerks rule here at WealthTrack. We know that technology has radically changed investing. We have access to more news and financial information than ever before…

For better or worse we can respond to it instantly and much more cheaply. But has it made us better investors?

20 plus years ago, two brothers David and Tom Gardner took advantage of new technology, the internet and started an online investment service called The Motley Fool. According to them, it’s now the largest online investment advisory service in the world. Their goal: to make their audience better investors. Now, I have known about The Motley Fool for years, friends and family members were subscribers. But The Fool was not on my radar screen because I don’t pay a lot of attention to stock advisory services. I mostly talk to mutual fund managers whose portfolios and performance I can track over periods of years.

So why am I making an exception with The Motley Fool?

One reason is, I really like what The Motley Fool has done: create an online community of investors and provide them with first rate research and recommendations.

How do I know its first rate? I looked at their track record, which is readily available on their website. Since 2002 their Stock Advisor service shows both David and Tom have outdistanced the S&P 500’s 50% plus gains by considerable margins. David Gardner’s swing for the fences growth approach has buried the market with its 200 plus percent advance. Tom Gardner’s more cautious value approach has handily beaten it with 80% gains.

Mark Hulbert’s Financial Digest which tracks more than 200 investment-advisory newsletter services has given Stock Advisor and several other Motley Fool newsletters top marks over the years. And The Motley Fool now has three mutual funds. The oldest, Motley Fool Independence is rated four-star by Morningstar and its 5-year track record puts it in the top fifth of its world stock category. It has handily beaten the market and its peers.

Motley fool Great America fund, rated five-star is near the top ten percent of its mid-cap growth category. I recently started reading their flagship Motley Fool Stock Advisor newsletter co-written by the founding brothers. Well it’s fun, easily understood and similar to WealthTrack takes a long term approach to investing.

So I reached out to the company and younger brother Tom accepted the invitation. I started by asking him for his 20 year perspective on what makes us better investors.

TOM GARDNER: I think the first thing is our time horizon. So if every investor out there just doubled their time horizon right now, their returns would be better. They would be more tax efficient. They would learn to focus on finding things that have staying power, great businesses or great investment products that are proven over time to do well. They would chase fads less and, therefore, they would do far less selling at the bottom and buying at the top. They wouldn’t worry about where the market was and what trend was happening now. So time horizon would be the number one. I’d say number two, a diversified portfolio. Obviously there are truly great investors, and Warren Buffett has said put your eggs in one basket and watch that basket, and there are some great investors that invest that way, but I would say for the majority of the population, making sure that you have a portfolio that’s not going to bring heart-wrenching moments for you when there are down periods, and you can look down periods by industry or even your entire portfolio. If you have 40 stocks in your portfolio, when the market’s down, you realize, gosh, the whole market’s down. It’s just the way it is. If you have only four stocks in your portfolio or six, you may really overreact emotionally in a bad time.

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