Over the course of the last few weeks, big changes have taken place at two of Motley Fool’s subscription services, Special Ops and Million Dollar Portfolio. In both cases, senior advisors were replaced, the analyst teams reconfigured, and the investment strategies re-focused.
I have not written a lot about either one of these services on this site because they never distinguished themselves as worth covering, to be honest.
Special Ops: ‘Special’ like the Titanic
In the case of Special Ops, which focused on special situations like turn around plays, and in companies that were in theory completely misunderstood and undervalued by the market, their performance was abysmal. In February 2014 I even put them on a “death watch” as their performance seemed to get worse with every single month. The idea behind special ops investing is not unlike what a private equity firm or hedge fund does: find companies that are completely undervalued or misunderstood by the market, invest in them, and then wait for the catalyst (such as a spin off for example) to occur, and then reap big returns in theory. These types of investments can take a while to play out, and results tend to be very hit or miss. When they work out they tend to work out really well, but when they don’t… well you end up with performance like you saw in Special Ops.
So in early December it was announced that Tom Jacobs, the senior advisor of Special Ops was out. Not a lot of detail in the announcement but he was wished “the best of success” and subsequent discussions on the boards made it clear it was not a voluntary move. He was replaced by Jim Gillies, one of the advisors from Motley Fool Options. Jim Royal, the other advisor for Special Ops remains with the service. They immediately sold off most of their existing positions, and have stated that their focus going forward will be purely on “special situations”. There will be very limited options investing, and no shorting or hedging. From their FAQ:
Our focus will be primarily spinoffs and thrift conversions, with activist investor plays, jockey plays, Pay Dirt-type value, and options being secondary (but still important) strategies.
More importantly, they no longer claim they will outperform in market downturns. That used to be one of the selling points of the service: Want a way to make money in a bad market? Buy these Special Situation investments that aren’t correlated to the markets and you’ll make money when the market turns south, in theory. Now they are emphasizing “performance over the long term”, and the concept of “accuracy”, meaning that if you made money on an investment, that’s a win, and over the long run, a high accuracy rate will lead to outperformance. That seems to be an approach Jim Gillies is borrowing from his Options service where they measure their performance the same way.
I’ve been using the phrase “in theory” a lot in talking about Special Ops and I think that’s the problem with this type of investing. In theory these severely undervalued or misunderstood investments will one day unlock their value and you’ll make a lot of money. The problem is that hedge funds and private equity firms have armies of high paid analysts searching for the same opportunities. I don’t think the Motley Fool can consistently compete with those types of resources on this playing field where it’s not about long term, buy and hold investing, where you can beat the hedge funds just by holding on longer. This is about identifying the opportunities early and getting in on the investments before every one else catches on. How many times can Motley Fool do that – enough to produce that long term accuracy they are now focusing on? I’m not convinced they can.
Cleaning house and refocusing the strategy was a necessity as it was clearly not working at all. But I wonder if this new approach will just be a case of rearranging the deck chairs on the Titanic.
Million Dollar Portfolio: So Much Potential, So Little Execution
Million Dollar Portfolio is also undergoing sweeping changes, and unlike Special Ops, I think this really could be a rebirth of a service that always seemed to have a lot of potential, but whose performance and execution just never followed through.
MDP’s strategy was to make recommendations from across the other Motley Fool recommendation services (i.e. Stock Advisor, Inside Value, Hidden Gems, etc.). It was a real money portfolio ($1 million dollars) and the idea was it would be the best of the best from across the Motley Fool universe. Well the performance never panned out, and without that I never really saw what the service offered to make it stand out against the other portfolio services like Supernova and Pro.
Seems I wasn’t the only one who felt that way. Ron Gross, the senior advisor of MDP, is now out of that role, replaced by Matt Argersinger, the lead advisor from Supernova Odyssey. Gross is moving into an “emeritus” position at MDP where he will be focused on “educational content” and take on a wider role across Motley Fool in their value-oriented services. This move makes a lot of sense to me – one of the things I like about MDP was some of their content on portfolio building and valuation – so if we’ll be getting more of that from Ron in this new role, it should be a good thing. And Matt has done a really good job so far with Supernova Odyssey, so I will be very interested to see what he can do with an even wider universe of stocks from which to pull.
They’ve currently put the entire portfolio on hold and in the next week or so will be selling and reallocating positions – they’ve indicated it won’t be the complete gutting that happened with Special Ops but more of a surgical approach.
And they will also be refocusing their strategy as well. Now the portfolio will be based solely on stocks from the recommendation services that are either Core/Buy First stocks in those services or current Best Buys. They’ll publish a Watch List and then pick the stocks to buy from that Watch List within 30 days.
I will be keeping a closer eye on MDP now as I think these moves could reinvigorate the service. The combination of Ron’s content with Matt’s portfolio management could be a fantastic combination. And as I reevaluate my own use of the Motley Fool One services, if MDP turns itself around, it could prove to be a much more affordable alternative to MF One that will give me access to all of the recommendation services, which I consider to be the strongest parts of Motley Fool anyway.