Million Dollar Portfolio

Million Dollar Portfolio
4.25 (85%) 8 votes

Million Dollar Portfolio Introduction

Motley Fool Million Dollar Portfolio (MDP) is a real money portfolio service offered by the Motley Fool. Launched in October 2007, with a heady goal of achieving 15% annualized returns[1], it has had a rather controversial history. Upon launching, it ran right into the financial meltdown, and took significant losses. Realizing it had dug itself quite a hole, MDP went through a series of controversial changes over the years, which included reducing its stated goal of 15% annual returns to simply outperforming the S&P, creating separate portfolios in an effort to isolate the poor performance of the original portfolio, and tweaking its allocation and buying strategies. Although they did have some stretches where they did outperform the S&P 500, MDP has been generally disappointed. Finally after 7 years of lackluster existence, in January 2015, the service was officially reset, with new advisors brought in, a modified investing strategy, and much more modest performance goals. The information in this review is based on that current reincarnation.

Million Dollar Portfolio Overview

Million Dollar Portfolio is a real money portfolio, with an original capitalization of $1 million. They do not receive any additional outside cash investments; the only way to generate more cash for additional purchases is via dividend income and selling existing investments. Per their charter, they are restricted to investing only in companies that have been previously recommended in the Motley Fool’s stock-idea services: Stock AdvisorRule BreakersIncome InvestorInside Value, and Hidden Gems. Matt Argersinger is the lead advisor, since January 2015.

MDP has a stated goal of beating the total returns of the S&P 500 by at least 3 percentage points on an annualized basis.

They have a Motley Fool centric approach to diversification in that rather than using familiar attributes such as cap size (i.e. Large, mid. Small, etc.), region, industry or valuation to vary their investments, they instead allocate across the different recommendation services. They identify their 6 distinct diversification/investment strategies as follows:

MDP 6 Allocation/Diversification Strategies

  1. David: Rule Breakers, Stock Advisor (Team David)
  2. Tom: Hidden Gems, Stock Advisor (Team Tom)
  3. Growth: Rule Breakers
  4. Value : Inside Value
  5. Dividend: Income Investor
  6. Small Cap: Hidden Gems

I consider the identification of David and Tom as distinct strategies to be misleading and generally a duplication of their other strategies. David Gardner’s Stock Advisor picks tend to be growth oriented (although not exclusively) and his Rule Breaker picks are definitely growth and small cap oriented. Tom Gardner’s Stock Advisor picks are also primarily growth oriented. I would actually categorize Rule Breakers as almost “venture capitalist” in that they tend to invest in very young public companies and a ton of higher risk companies (biotech was a big theme in 2015). So just realize that the diversification is not nearly as diverse as the list above would try to imply.

MDP will generally buy 1 to 2 stocks per month. In order to be considered for purchase a stock must first be on their watchlist. The watchlist is refreshed each month by their advisors recommending a new set of stocks for the watchlist. Purchases are then potentially executed on a watchlist stock within the next 30 days. Note that if a stock is already owned by the portfolio, it doesn’t need to go through this watchlist process – it can be bought at any time.

The size of the initial allocation for a new stock depends on the quantity and riskiness that they determine for the company. Higher quality/lower risk stocks will get allocations of 5-6%. Lower quality/higher risk stocks will warrant smaller allocations. They have a set of qualitative criteria for determining quality and riskiness – it’s not based on any formulaic risk models or valuation metrics. This is not necessarily a bad thing, but worth noting if you are looking for vigorous analytical methodology.

They do not sell stocks on a regular basis. They will sell if they feel something significant or fundamental has changed about the company. And because they are a fixed capital portfolio (they do not receive any additional cash inflows beside the original $1 million at founding), they will occasionally need or want to recapitalize the portfolio by selling a predetermined percentage of the portfolio to invest in stocks they think will provide a better opportunity going forward.

What do you get?

  • You get access to the Million Dollar Portfolio website, including all past, present and future updates, trade alerts and other materials
  • You get access to the MDP community and message boards
  • You get the weekly MDP email digest every Monday
  • Trade alerts are sent via email
  • You get full access to the other Motley Fool services (including all historical coverage and message boards): Stock Advisor, Rule Breakers, Hidden Gems, Inside Value and Income Investor

Performance

As mentioned in the introduction, MDP’s performance has been pretty mixed since its inception, but generally disappointing. When MDP launched in 2007, one of its first investments was a significant purchase of an S&P 500 ETF as a way to be invested in the market while they decided which stocks to buy. When the market started falling apart in 2008, that strategy proved to be a costly one; they would have been better served staying in cash. In any event, this put them in a hole they from which they never really recovered.

They did have a few intervening years where performance was better, but continued with a value-oriented strategy that caused them to miss out on a lot of top performing stocks (the type that always look over-priced) and to sell others they would have been better off holding onto. With the trend of under performance continuing even as the market recovered, the Motley Fool finally replaced Ron Gross with Matt Argesinger as lead advisor in January 2015. Matt and team instituted the new investing strategy that they currently follow. They also sold a large number of existing positions and purchased a number of new investments in a short period of time in early January 2015. Since that time the market has yet again gone down and MDP performance has actually gotten worse.

Their stated goal is to beat the S&P 500 by 3 percentage points on an annualized basis. As of December 2015, they were actually underperforming it by -1.2%. More worrisome, that performance has actually gotten worse over the last year and a half. The table below shows that negative trend.

MDP Annual Returns

As a result, their return vs. the S&P 500 since inception has tanked as well. In December 2014, their returns since inception were -5.6% below the S&P. As of February 2016, that result is now -18.7%.

My Take

MDP is the Motley Fool Service that I really want to like. It is the portfolio service that is in theory perfectly suited to make the most of the Motley Fool investment world: they choose all their investments from the various Motley Fool recommendation services, and your membership give you access to all of them. It is in theory most similar to how I imagine the prototypical Motley Fool member would want to invest their money: by taking the best of the stock recommendations made by all of the different Motley Fool recommendation services along with specific allocation guidelines. It’s got a simple, straight forward long-only (i.e. no shorting, hedging or options strategies like Motley Fool Pro) and has a long term buy and hold strategy based on fundamentals and qualitative factors. It’s the quintessential Motley Fool service.

And yet it feels like Motley Fool really dropped the ball here. It squandered it’s chance to create their marquee premiere service [2]. This was in part due to the almost absurd expectations that the portfolio launched with, almost guaranteeing failure from the beginning. The initial underperformance in the face of the global meltdown could be chalked up to bad timing. But the advisors in the service never fully capitalized on the opportunities this same market drop presented to them in the coming years. Motley Fool management allowed the service to languish for a number of years until they finally took action in January 2015. By that time, the trust in MDP had greatly deteriorated. It has been surpassed by Supernova and Motley Fool One as their marquee services.

The good news, and the primary reason I’m optimistic about MDP going forward, is that Matt Argersinger has taken over the helm of the portfolio. He’s done a good job with Supernova Odyssey so he has a track record of success at least. I’ve also been pleased to see they have done some opportunistic buying during particularly steep market drops earlier this year. It tells me his team is willing to be proactive about managing this portfolio. And they’ll definitely have to be proactive to dig themselves out of the hole they find themselves in. But the service desperately needed to shake things up and a change in momentum, and Matt and team are well-suited for that task.

The verdict: Despite my love for the idea of MDP and the optimism I have for the service, the fact is they are not performing well, and performance has actually gone down since the change in advisors. Adding insult to injury, this is a premium service, so you are paying a high fee for this as well. So I can not recommend this service at this point in time. I’m keeping an eye on it and will see if they can turn the ship around. It’s only been a little over a year since Matt and his new team took over, and I feel 3 years is a more adequate timeframe to make a true assessment. But for now, you might be better served with Supernova if you are looking for a portfolio type of service, and which is roughly the same price (based on the last prices I have from 2014). Or if you are willing to do some of the work yourself, just stick with one of the individual recommendation services, which are significantly cheaper.

 

Footnotes

[1]: Ah, to remember those heady days prior to 2008 when the market would only go up. The current MDP FAQ states that level of performance remains “aspirational”.

[2]: They even published a book in 2008 with the same name.

 

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