Supernova Performance vs. Stock Advisor and Rule Breakers – Updated

Background

Supernova was created in March of 2012. The idea behind the service was to create various real money portfolios based solely on David Gardner’s picks from Rule Breakers and Stock Advisor. In theory you get the benefit of a team of advisors who are able to pick the best of all of David Gardner’s prior picks, with more flexibility to buy and sell, and perhaps most importantly, the ability to provide allocation guidance in building these portfolios (for more information on Supernova, read my detailed review).

The price for those additional features is significant. As of December 2014 a one-year subscription to Supernova was $1999. Signing up for a 5 year subscription reduces the per year rate to $800, but still at a total cost of $4000. Compared to the annual subscription costs for Stock Advisor and Rule Breakers ($199 and $299, respectively), this is a substantial difference.

Is Motley Fool Supernova Worth It?

Given this significant expense, the question I often get is whether Supernova is “worth it”. It’s a question I first addressed last year. At that time, 22 months into the service, my general conclusion was that Supernova was only really worth the extra cost for investors with large enough portfolios to absorb the additional cost. But even then, there wasn’t enough of a performance difference to make them a compelling option.

This time around, with Supernova in existence for over 3 years, my conclusions are very different.

The Analysis

I wanted to tackle the question of “Is Supernova worth it?” in a practical, real world way. So I looked at every single monthly recommendation that Stock Advisor and Rule Breakers have made since Supernova’s inception in March 2012, and looked at how much money would an investor have if they invested $1000 evenly in each of those recommendations.

I did the same with every single Supernova Odyssey and Phoenix pick as well, so that I could do an apples to apples comparison using my mechanical investing methodology, for the sake of this analysis.

I also calculated how much the same investment in an S&P index ETF (specifically State Street’s SPDR SPY) would be worth. I chose the SPY because it is an actual vehicle that you can invest in, and so can be considered a true alternative to active stock picking.

I also accounted for any stocks that were sold during this time, locking in their gain or loss at the date the stock was sold. For all transactions, I used the adjusted closing price on the day the recommendation was issued.

Finally, I wanted to compare this mechanical approach with the actual returns that Supernova has achieved, per the official website. These official results account for their actual allocation decisions, and actual buy and sell prices.

The Results

Following my mechanical investing approach, the best performers vs. the SPY were Tom Gardner’s side of Stock Advisor (+29.5%) and Supernova Phoenix (+24.9%). Rule Breakers and Supernova Odyssey would also have outperformed the SPY, although by a smaller margin. It is only the David Gardner side of Stock Advisor that would have underperformed. David Gardner’s lagging performance is consistent with what I found last year, as is Tom Gardner’s leading performance. Note that following a combination of Tom and David’s picks would have outperformed the SPY by +15.2%.

However what really caught my eye was the actual returns of the Supernova portfolios versus my mechanical approach. While Odyssey’s picks only outperformed the SPY by +6.9% using the mechanical approach, their actual results were +27.0%. The huge difference is attributed to the fact that they allocated larger amounts of capital to some of the best performing stocks and allocated less capital to some of the lower performing stocks. In other words, the allocation decisions made by their advisors led to an additional +20 percentage points in gains as compared to just buying the same amount of each recommendation. This is a clear indication that they have added value to the investing process.

When you do the same comparison for Supernova Phoenix, you only see +3.9% difference in their actual performance vs. the mechanical approach (28.8% vs. 24.9%). So the allocation decisions that their advisors made apparently added some additional value, however the difference is much slimmer. And it would be difficult to say how much of this difference is “statistically significant”.  That being said, the stocks they recommended had very strong performance, even if the allocation decisions did not play as much a part.

Factoring in Costs

So both Supernova portfolios have had great performance. However, the results don’t take into account the price of membership. The common rule of thumb is to keep your transaction costs to around 1-2% of your investments. That typically applies to the cost of commissions when you buy or sell a stock, but membership costs can be treated the same way.

So in my mechanical investing examples, what if you back out the cost of membership? At $6000 for Supernova ($1999/year for 3 years, approximately equal to the 39 months of trades I analyzed), this represents 5.4% of the 111K invested in Odyssey, and 8.3% of the amount invested in Phoenix, significantly higher than the recommended 1-2%.

Similarly, if you back out 3 years of costs for Stock Advisor ($600) this represents 0.7% of the invested amount; and for Rule Breakers ($900), it would be 1.1%. This is more in line with the cost guideline.

As you can see, the costs have a big impact on the gains of Supernova, almost wiping out all the gains of Odyssey (in my mechanical investing approach) and dropping Phoenix’s gains to about 17%. That is still better than Rule Breaker’s results but only marginally better than Stock Advisor.

Keep in mind this assumes you are investing roughly $2000/month which is not practical for many people. If instead you only invested $1000/month ($500 per recommendation), the membership cost eats even more into your return, and Supernova’s performance versus the other services suffers the most.

Conclusions

When I did this analysis last year, the results left me with the general conclusion that Supernova was not really worth the extra cost unless you had a very large portfolio. Both Stock Advisor and Rule Breakers results were in line or slightly better than the results either of the Supernova portfolios produced, so membership cost was a major factor.

Since that time, we have crossed the 3 year mark for Supernova, and they have made a number of additional buy decisions, a number of sell decisions, and allocation decisions within both the Phoenix and Odyssey portfolios. Phoenix’s overall performance has slightly improved in the last 14 months, while Odyssey’s performance has slightly decreased, but both have remained very strong over the time frame. And in that same time, Stock Advisor and Rule Breaker’s performance has decreased noticeably, and they no longer compare favorably to Supernova. The additional cost for Supernova is still a factor, but much less so for portfolios above a certain size.

But the key finding here is that Odyssey’s advisor’s decisions led to much better performance than even a mechanical approach using the same stocks, and even if you factor in high annual costs. So as to whether Supernova Odyssey is “worth it”, I would say that it definitely is for investors with at least a 80K – 100K portfolio. Anything smaller than that and the cost would start to eat up too much of your profits, and you would probably be better served with Stock Advisor or Rule Breakers.

You also could have stuck to Tom’s side of the portfolio and done extremely well, better than either of the Supernova Portfolios in fact. And with very low annual costs, the true performance is even better in that light. In the scope of this analysis, this would make Tom Gardner’s Stock Advisor selections the clear winner.

The important thing to keep in mind is that to achieve these results with any of the services, you would have had to invest in every single recommendation at similar prices and in the exact same amounts. You also would have had to follow all their sell recommendations. And the important thing is you would have had to do this consistently for over 3 years. For all the services, a big portion of their outperformance comes from a minority of their picks. If you missed even one of them, your results likely would have been lower.

Finally, of course, this is all based on past performance, and future performance may be very different.

 

If you enjoy this type of in depth analysis, you may find my Performance Insights to be of value as well.

{ 11 comments… add one }
  • M June 8, 2015, 6:52 am

    Thanks for the wonderful analysis. Could you share your excel spreadsheet that you used for calculations?

    Reply
    • Kevin June 11, 2015, 7:09 pm

      Hi sorry, I don’t share the spreadsheets as that would reveal the individual recommendations that they made, and I want to maintain their confidentiality.

      Reply
  • Brent Ralston June 11, 2015, 9:43 am

    Did you get David and Tom Gardner mixed up in your analysis? David has consistently had the higher returns than Tom, but in your analysis, you have Tom with the higher returns. Good analysis, though, and very helpful for me in determining whether Supernova is for me or not.

    Reply
    • Kevin June 11, 2015, 8:41 pm

      Brent, no I didn’t mix up the brothers – you are reading that right. Tom’s performance over the last couple years has actually been better than David’s. Another shameless plugs: my Performance Insights will show you by just how much, as well as a lot of other interesting performance detail.

      Reply
  • Larry Longenecker June 19, 2015, 9:56 am

    Good analysis.

    Reply
  • vincent July 3, 2015, 3:32 pm

    Very nice article.
    You list the 3 years of costs for Stock Advisor at $600 but in checking out their website, it looks as if you can get the 3 year subscription for $159
    “Motley Fool Stock Advisor (3 years), $159”

    Am I looking at the wrong Stock Advisor subscription? Thank you

    Reply
    • Kevin July 3, 2015, 9:24 pm

      Yes, that is the same Stock Advisor subscription. They do offer discounts from time to time, including fairly steep discounts when signing up for multiple years. Supernova does the same. However for purposes of the analysis I wanted to look at advertised one year subscription prices.

      Reply
  • Frank July 27, 2015, 4:44 am

    Great work, as usual! Much appreciated.

    Reply
  • Vic Dixit June 4, 2016, 10:40 am

    Great Analysis and gives insight into the services offered

    Reply
  • Josh Utley January 25, 2017, 10:19 am

    Thank you for taking the time to run those numbers. I started with Stock Advisor in Dec of 2015 and then switched to Super Nova and then to MDP where I think I’ll stay until April as it offers almost all of their services except Fool One and Supernova.

    I chose their service because we seem to think a lot alike and their info has only given me more confidence as does your article.

    Thank you again.

    Reply
  • HowardRoark October 8, 2017, 4:29 pm

    Thanks for this great analysis. I love the way both Fools are describing the market and for what you can learn from them. However, there is only so much i could invest – i’m way below the 100k mark you mention, so i need to pass on this ‘opportunity’.
    By the way, those adds boasting how great the next service is are getting on my nerves. however, the Fool is always saying that this is how advertizing works.. i guess i need to get used to it. I”m sticking to my ‘stocks’ subscription and kicking himself for having cancelled the inside value some 15 yeas ago 😉 – buy hey, people year on own mistakes best.
    HowardRoark

    Reply

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