Supernova Explorer

Motley Fool Explorer Review

Motley Fool Explorer is a bit of a unique service within the Motley Fool suite of offerings. It was originally one of the portfolios offered within  Supernova. In fact , Explorer is still part of the Supernova service, but at the same time it has been made into its own stand alone service.

So what is Motley Fool Explorer? Per their website, this is their objective:

To bring the Supernova Universe into sharper focus, through hands-on research, innovative analysis, and head-to-head comparison.

Each month, Explorer will look at our universe of stocks through a unique lens, diving deep into several stocks, and choosing the one with the best market-beating opportunity over the years ahead.

Explorer is ideal for any investor looking for additional stock recommendations beyond Stock Advisor, Rule Breakers, and the other Supernova missions. It’s also tailor-made for Fools who want to learn more about disruptive technology and trends and discover new ways to become a better investor.

How it Works

They accomplish their objective by exploring a different investing theme each month. They aptly name these themes “Explorations”, choosing four stocks from within the Supernova Universe (i.e. Rule Breakers and the David Gardner recommended stocks from Stock Advisor) that relate to the Exploration, researching them, and picking one “winner” from these stocks which they then purchase as an investment.

Examples of some of the past Explorations that they have undertaken are Biotech’s Next Blockbusters and Internet of ThingsThe process of picking the winner itself is run like a bracket tournament, with each week being a different step of the process.

In the 1st week they announce the Exploration (or theme) and the 4 stocks they have chosen that are related to the theme.

In the 2nd week they present research on all the companies. In addition to an analysis of the stock and company fundamentals, that research can include interviews with company experts and industry deep dives as well.

In the 3rd week, the 4 stocks are randomly paired against each other, as if in a tournament, and the Supernauts vote for one stock from each pair, based on which company they think is the best investment opportunity over the course of the next 3 years.

What, you ask, are Supernauts? The Supernauts are a collection of investing experts from within the Fool community; a combination of Analysts on the Motley Fool staff, but mostly members from the Fool community (i.e. subscribers).

In the final 4th week of each month, the Supernauts vote on the final winning stock. The Motley Fool then invests $20,000 of the Motley Fool’s money in the winning stock and add it to their scorecard. If the position is profitable at the end of those three years, they will either “reward Explorer followers” in some way or donate some of the profits to a charity. But let me be clear, it is generally only a portion of the profits. More on that in the My Take section below.

The price of a subscription (as of August 2017, a one-year subscription was $1099) includes the following:

  • Access to the Motley Fool Explorer website
  • Access to all of Stock Advisor, Rule Breakers and their members-only forums
  • Weekly email updates as they progress through the monthly Explorations

Supernova Explorer Performance

You can view up to date overall Supernova Explorer performance, along with all other Motley Fool services, here.

As of August 2017, here are the relevant performance statistics:

  • There have been total 44 Explorations and winners so far
    • Only 6 have hit the 3 year mark
  • The overall average total return as of August 25 for all completed and not completed Explorations was +4.2% vs. the S&P.
    • If you remove the top performer and bottom performer, the average drops to +2.03%.
  • 43% of the picks have outperformed the S&P, while 57% have under performed.
  • 23% have a positive return vs. the S&P between 0 to +30%
  • 34% have a negative return between 0 to -30%

My Take

As I mentioned earlier, Supernova Explorer started as a side-project of the Supernova service, and that is a big part of why I never wrote it up previously. And then somewhere along the line, the Motley Fool decided to promote it to a stand alone service, with it’s own subscription. While the monthly deep dives are a pretty good way to learn more about certain industry or investing trends, and the tournament style concept is a fun way to facilitate that research, as an actual stock picking service, I think it falls short.

While the +4.2% average return vs. the S&P (as of the time of this writing) is decent, when you look at in combination with the 43% accuracy rate, the 4.2% becomes even less impressive. And yes, it’s a fairly new service, so most of the picks are less than three years old, but considering the streak that growth and technology stocks have been on the last couple years, the fact that less than half of the stocks are outperforming the index, highlights a serious flaw in the service, and that is that it is really an education service first, and a stock picking service second.

This is because the starting point of all their investments is a theme they pick, and then they pick 4 companies to fit that theme, so it’s not necessarily that the recommendation is the best pick of all the available stocks at that point in time, but rather the best one from that theme. So they might be picking the best video game related stocks, but what if that sector is already over inflated or  healthcare stocks are actually the better picks at that point in time – they are not even going to be considered.

Furthermore, the stocks they are allowed to pick from is the “Supernova Universe” which is only Rule Breaker stocks and David’s Gardner’s picks from Stock Advisor. So while the premise of Explorer is that they pick the best stocks for that given theme, it’s really only the best stocks that fit that theme that also happen to have been previously picked by one of those service. So there may be twenty other video game related stocks in the world that aren’t available to pick that would actually be better.

The impact of this limited pool of choices can also be observed by the fact that of the 44 Explorations so far, 9 (20%) have been repeat recommendations.

And then some of the themes they choose are actually completely random. One example is an Exploration named “Stocks with Letters in their Name” (e.g. LKQ, AT&T). While this is a fun idea, clearly there is no actual investment theme here and the starting point is flawed.

I’m also not a big fan of having the Supernauts consist of “amateurs”. While there are a few that I really respect (e.g. Tom Engle), only about 4 out of the 24 Supernauts have what I would call a good track record in their picks, yet 9 of the 24 have what I would deem terrible performance. I’d rather just take those top 4 or 5 Supernauts and have them run their own portfolio. But since the community premise is part of the fundamental structure of this portfolio, it likely will not change.

As far as the educational aspect of the service, while it’s decent, it’s not something you can’t really find elsewhere for free, or even just from being a Stock Advisor or Rule Breaker subscriber for about a third of the cost.

One note about the part I mentioned above regarding them giving profits back to the community. Don’t get too excited. While on the surface they make it seem as if they will share all the profits with the members, reading the fine print shows you that they share a portion of the profits, and even then it seems to be a minimal amount and awarded as a sweepstakes. As an example, Lululemon was a winner of one of the Explorations, and they had a total return of 44% on their $20,000 investment. That’s almost $9,000. But they ended up giving away “many” $50 Lululemon gift cards to those who submitted entries. While they didn’t state how many they gave away, I’m pretty sure it was only a fraction of their overall profits. I’m a capitalist through and through so they don’t have to share their profits with anyone, but in classical Motley Fool marketing style (the style that has led many to believe they are a scam), I think they misleadingly oversell this aspect of the service, and it feels gimmicky to me.

The selling of Explorer as a stand alone service is part of an increasing trend I’ve noticed at Motley Fool where they re-purpose existing materials and stock recommendations into new focused premium services (see Total Income as another example).

My advice – You’re better off just sticking to the actual Supernova portfolios which have better performance, allocation guidance, and also provide a lot of transparency and education on how they make their picks. If you do that then Explorer is available to you as well, and you can peruse it at your convenience. If you don’t want to spend that much money then you could subscribe to Stock Advisor and Rule Breakers for a third of the price, and get essentially the same picks and coverage. Motley Fool Explorer started as a side project, and that’s where it should stay.

Also read my full write-ups on Motley Fool Stock Advisor, Motley Fool Rule Breakers, and my introduction to Motley Fool Supernova.

Read more about my story or see some of my favorite financial blogs and books.

And last but not least, leave a comment below with any feedback or questions!

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