Flawed Analysis at Motley Fool

The MotleyFool.com site is run by investors and promotes itself as being THE source of information for the individual investor. I used to read the articles religiously. But after a year or two, I started to notice that the articles were all the same with one stock symbol swapped out for another.

The analysis seemed good, but there was never any definitive answer to anything. They also used to have writers go head-to-head about why something was worth buying and why that same thing wasn't worth buying. Some might argue that the writers are just trying to present a balanced view with the intention of allowing the reader to make their own decision. A more cynical sort might think the readers were floundering just like most other amateur investors. Sure they made a good pick here and there, but they didn't have anything more going for them than any other newsletter.

I even tried out two of their fee-based services. I had particularly high hopes for the Hidden Gems service. The purpose of this program was to identify small, up and coming companies that had the potential to double in three years. At first, the service made some phenomenal picks. Those picks happened to coincide with the period in which small caps were outperforming other areas of the stock market. And sure enough, subsequent stock picks didn't do as well.

But what really bothered me was that the creators of the Hidden Gems service somehow thought it made sense to compare the returns of the S&P 500 to the Hidden Gems returns. This makes no sense! The gems were, by definition, small cap stocks. How is it appropriate to compare returns of small cap stocks to a large cap index? Especially when there's a much more appropriate small cap index, the S&P 600.

So eventually my subscription ended and I felt no need to renew it.