Motley Fool
All posts from Motley Fool
Motley Fool in Motley Fool,

Stock Newsletters: Motley Fool Rule Breakers vs. Hidden Gems

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%.

Yet since their inceptions in 2004, both the Motley Fool Rule Breakers and Motley Fool Hidden Gems newsletters have consistently beaten the market. More specifically, the average Rule Breakers pick has returned more than 96%, outpacing the market by about 40 percentage points. And Hidden Gems members have enjoyed an average return of more than 59%, beating the S&P 500 by over 6 percentage points in the process (all returns as of 2/28/2017).

But Rule Breakers and Hidden Gems have accomplished these feats using two distinct investing methodologies. So what makes them different, and which stock newsletter is the best fit for you?

Motley Fool founders Tom and David Gardner stand behind each of their flagship investment services. IMAGE SOURCE: The Motley Fool.

How Rule Breakers lives up to its name

Motley Fool co-founder David Gardner wears the hat of Chief Rule Breaker, where he leads his team of analysts for the newsletter of the same name.

More specifically, 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 who 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.

The Rule Breakers team also offers two new stock recommendations each month (or re-recommendations of existing picks), updates on 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 maintains its own list of "Starter Stocks," or essential companies that they believe can form the foundation of any strong, growth-centric portfolio.

How Hidden Gems finds diamonds in the rough

Meanwhile, Hidden Gems is led by co-advisors (and longtime Fools) Seth Jayson and Andy Cross, who are supported by their own team of exceptional analysts. Together, the Hidden Gems team specializes in finding and recommending undervalued small-cap companies -- those roughly defined, but not strictly limited to, businesses with a market capitalization of less than $2 billion -- with the potential to generate significant capital gains while taking a reasonable amount of risk.

Hidden Gems also looks at its potential recommendations through a long-term lens; the service aims to hold stocks for at least three years but ideally wants to find companies it can buy and hold forever. As a happy consequence of this long-term mentality, Hidden Gems does not attempt to "time the market" or engage in frequent trading. 

Speaking to that "reasonable amount of risk" -- and similar to the growth stocks Rule Breakers finds -- Hidden Gems subscribers should keep in mind that in exchange for greater potential returns, shares of these smaller companies tend to be more volatile than their larger, more stable counterparts. However, the Hidden Gems team also knows that this risk and volatility often creates opportunities for patient, long-term investors to buy these small-cap stocks at attractive prices.

To help smooth things out and diversify, Hidden Gems also believes its members should practice regular investing. That means putting money to work at least once per month to buy one or two stocks that appeal to you, and ultimately building a strong portfolio of at least 20 stocks recommended by the newsletter -- a task simplified by its own annual list of "Core" portfolio stocks, monthly "Best Buys Now," and two new recommendations each month, as well as regular updates on any stocks they believe should be sold or put on "hold" given temporary concerns.

You can start crushing the market today!

Whether you favor Motley Fool Rule Breakers' growth-centric approach, or share Motley Fool Hidden Gems' unquenchable thirst for finding the market's best small-cap stocks, 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 Rule Breakers. Or you can click here to pay as little as $53 per year for Motley Fool Hidden Gems. Either way, it could mark the beginning of your journey to life-changing wealth.