Like most folks (I hope!), I diversify my sources of advice and ideas when it comes to investments. My first source is my financial advisor; my third source is my random readings, where I keep a weather eye out for ideas, whether it’s new science with commercial possibilities or pure commercial news and rumors.
And that second source I so blithely skipped over? The Motley Fool.
I ran into TMF many years ago, back near the start of their site. I stuck around for several reasons (and I apologize for the mix of tenses):
- They didn’t seem to hype stocks. They certainly had their recommendations & favorites, but they also had criteria, publicly shared and understandable, for holding and folding – and they took it seriously. It seemed – and seems – far more reasonable than other stockpickers who seem to pull predictions out of their asses. Indeed, they built philosophies of investing – and subjected them to actual analyses to evaluate their potential for successful prediction.
- Unlike most competing agencies, they were – and still are – advocates of the long view of investing. They are buy and hold investors, with time horizons, for the most part, at a minimum of five years, and in some cases far longer. Not that they don’t sometimes point at short-term opportunities, but they approach such opportunities with both practical and philosophical caution.
- Related to the previous point, they were unreformed contrarians. The wisdom on the street didn’t impress them. Technical investing, based on possibly meaningless patterns in buy and sell orders? They ridiculed it. They preferred to assess fundamentals, both in terms of how the businesses were run, and the markets they were in. They pointed out that while you might get lucky in short-term investing, the brokers you’re using don’t need luck – all they need is you to try your luck, and the brokers make their money on the fees charged for making the trades. Why pay fees for many, many buys & sells when you can buy and hold – and avoid the fees (and taxes on short-term gains is higher than long-term gains)? Issues such as these, where they raised questions about dominant trends and suggested answers that could be considered at leisure, made them quite attractive.
TMF currently has, I believe, a public side to their site, but the value is in the services they offer for sale – Stock Advisor, Hidden Gems, Rule Breakers, etc. These are structured around specific investment strategies, and often their own money is invested next to your’s.
I continue to use them, but over the last few years I’ve had a feeling of creeping disappointment. Why? Changes in how they seem to reach out to the public.
For a long time, I suppose as they built themselves from a two man operation selling their chutzpah at stock recommendations (maybe I was naive to think it was a couple of guys – and some technical support – with a good idea), it really felt like a couple of guys who brought fresh thinking to the question of how to invest in the stock market, looking at each facet of the traditional investment model with skeptical eyes that, like children at a magic show, weren’t distracted by the bright lights, but saw the magician slip the ball into a pocket while staring up at the imaginary ball[1].
But now?
Honestly, now I apply that same skepticism (and my own home-grown bottle) to their advertising. From a recent mailing for their Motley Fool Explorer service:
You might have heard of Motley Fool Explorer. It’s quickly become one of the fastest-growing services in Motley Fool history for good reason.
The Explorer team conducts boots-on-the-ground research every month to identify the David Gardner stocks they think are poised to profit from the market’s most promising trends.
Fastest-growing meaning what, exactly? Ah, I see.
I should follow the herd. Otherwise, I may lose out.
And that is exactly what the Gardner brothers warned against when they first started out – herds of sheep get sheared, after all.
Another marketing tactic, for which I don’t happen to have a solid example (that mail was deleted) has to do with “seats” – open slots in a service. The new seats are going fast, and once they’re gone, the service will be closed to new members at least until next year. This is the sort of marketing hype meant to instill anxiety in the inexperienced investor. It’s a fight or flight response, meant to hit a reflex and get a profitable response, rather than appeal to the rational mind. That appeal to the rational, DIY approach to investing was the main attraction for them all those years ago. You could analyze their arguments, see their insights, and incorporate their strategies into your own approach. But this … marketing hype? It’s not designed to appeal to the intellect, but to suck in investors who may not be prepared for the situation. Add in such marketing copy as,
That’s because they know David’s track record for calling trends is legendary in this industry. Since 2002, he’s made 140 recommendations that have more than doubled in value… and 21 recommendations that have returned more than 1,000%!
Those kinds of 10x, 25x, and even 50x returns are possible only by spotting the market’s biggest waves.
And it just adds to the fight or flight response by appealing to the reputation of David Gardner. Not his ideas, but his results. And I know the Gardners will give you the documentation proving these claims – I’ve seen many of them happen, such as AOL and Amazon (but too bad for me, I didn’t act on those recommendations). But – it’s a bit of a magician’s trick. There’s no mention of the emotional stability required for this investment strategy, because they are making riskier bets and they sometimes have to stick to a stock like glue before it pays off years later. Nor do we get any feeling for his recent record. Did he get off to a hot start and then tail off? I can’t tell, and while I think he’s still making good calls, I can’t really be sure – and certainly the novice investor won’t even know to ask that subtle question. No, the advertising for these services makes it sound as smooth as silk.
And then there’s the follow-up emails. “Yes, your opportunity closed at midnight last night, but this morning we got a few sad calls from desperate investors who missed the boat, and so here’s one last chance to get a crippled entry into the service! Quick, call us at once!” Now this is just a bit slimy. Other people had regrets – maybe you should, too! Did you see the sheep go walking by?
Yeah, the follow-up emails are really the worst of the lot. Sure, maybe they’re in earnest – but even for a trusting guy like me[2], the red flags come popping out so hard it makes my head jerk. After all, sending out these final e-mails cost a few pennies, and writing the marketing copy that fills them isn’t going to be more than a $1000. And the emotional manipulation is fairly blatant. It has all the signs of being all about the money.
Now, I’m sure my more jaded readers are shaking their heads and asking why I’m bothering to even read these promotional mails if I don’t like them. Here’s what you need to understand:
I like the Fool. They’ve given me a lot of good stock ideas, and I appreciate that. And I appreciate the culture of their early business they built, based on the foundation of their philosophy. They’ve tried to build a community based on mutual aid and information exchange, and having done that myself in the ’80s in the BBS world, I understand how satisfying it can be to see people exchanging ideas and wisdom and learning and knowing you were part of making that happen.
But now I’m seeing this marketing blitz which, frankly, is at odds with their earlier methods of sharing their philosophies, insights, even ethics. And a marketing blitz which relies on hitting emotional reflexes is not a particularly ethical operation. It may be standard in the industry, and I understand, I really do, using their successes to build the business. Heck, I suppose they’re just trying to monetize their business. I understand that’s a typical maneuver, try to leverage the business as much as possible.
But it doesn’t feel like they’re really running ahead of the industry in the area of marketing. What do I know? Nothing. I am neither a marketing nor investment professional; I’m a software engineer who, to be bluntly honest, has sometimes treated investing as more of an entertainment than anything else. I couldn’t tell you the difference between cash flow and profit. (I read about them, recognize the difference, but five minutes later it all flees my brain.) I’m far more of a story guy, who appreciated the story of Amazon way back when, but was too shy to follow through.
But I worry about the Fool. Will this marketing effort, which strikes me as on the border of unethical, if only in my world, seep into their stock-picking operations? This is some matter of concern to me – maybe because I’m an ignoramus.
I will probably stick with the Fool, even though I’m not the active investor I used to be – I tend to stay within the ruts. But every time I receive one of these mails promoting their new services, I shudder. And wonder.
1Magicians find children their hardest audience, as one told me years ago – they don’t know they’re supposed to be distracted by what distracts adults.
2My wife tells me at least once a month that I am too eager to believe the best of people. Of course, she’s a cynic from Chicago, so I know she knows better and is just following her training.
