Motley Fool Supernova Review
Supernova is the newest premium service from Motley Fool, introduced in spring of 2012. It is a portfolio service based solely on stocks from David Gardner’s picks within his other two Motley Fool services: Stock Advisor and Rule Breakers.
There are currently two active portfolios being managed by two different teams of analysts – “Phoenix” and “Odyssey”. Phoenix is a portfolio geared towards people approaching retirement with a substantial capital base already established. Odyssey is geared towards people with a longer investment horizon who will be investing a steady amount of money each month (in other words, people still in their working years, not close to retirement). Both portfolios are long-only, buy and hold equity portfolios. David Gardner has left open the possibility that they may launch additional portfolios in the future.
As part of their subscription price, Supernova subscribers get a complementary full subscription to both Rule Breakers and Stock Advisor. This in itself is a really great benefit. There are no monthly or weekly newsletters per se, but you do receive weekly email updates. Other updates are posted regularly on the website, and there are also member-only boards where discussions take place (more of that in the My Take section below).
Members are free to follow one or both of the currently active portfolios; in any event they will have access to the entire Supernova site. Each of the two portfolios issues buy and sell recommendations on a different schedule. Supernova Odyssey issues Buy recommendations typically every 2 weeks, while Phoenix issues Buy recommendations once per month. As this is a portfolio service, each buy alert is accompanied by a recommended allocation precentage as well.
Supernova talks about these portfolios in terms of “missions” and in addition to these, there are a couple of other entertainment-oriented missions that they put on from time to time. For example, they have done a mission where members could submit the names of five stocks they thought would be the first to double in price. Your mileage on these little contests may vary – some members really enjoy them, while others such as myself, worry that they divert resources unnecessarily.
Supernova got off to a rough start. They kicked off the service right before a market downturn, and due to the charter laid out for these portfolios they were forced to buy into a sinking market. The performance has recently improved for both the Phoenix and Odyssey portfolio, and as of this writing, both are outperforming the S&P by single digit margins.
The Odyssey portfolio in particular started off poorly when their first pick proceeded to fall off a cliff shortly thereafter. The analyst team took a lot of criticism for that pick, and if you read other reviews on other Motley Fool review sites out there, this pick is often cited as proof of the service’s failure. But Supernova maintains the David Gardner philosophy of keeping a long term investment horizon, and so they are taking this set back in stride. APPL’s recent swoon has also been a drag on performance.
What Supernova is Not
Motley Fool Supernova is not an active trading service. David Gardner and team view their investing horizon as at least 3-5 years, and they hold stocks for the long term. If a stock issues a bad earnings report and the stock drops 7% in the morning, you will not get an immediate notification with an update and definitely no alert to sell. You can however go to the message board for that stock, and are likely to find an update there from one of the knowledgeable fellow members or one of the various other analysts assigned to keep an eye on the boards. This lack of immediate guidance has at times been a source of frustration for some members who panic when they see a stock in their portfolio taking a sizable hit. However it’s important to understand that this is not what the Supernova service is about. It’s about long term investing, and you should be able to stomach some rocky days.
Even in cases where the stock drops on potentially alarming news like a CEO resigning or even a rumored accounting scandal, for example, they rarely will issue a Sell or Hold recommendation that day. Their tendency is to digest and analyze the news and issue a more detailed response a day or two later.
Motley Fool Supernova is not a valuation based service. When Buy alerts are issued, it is implied that the current stock price represents a good entry point for that stock. However, they do not issue “Buy Below” guidance nor do they give any valuations of what they think their picks are worth. The service is focused on the overall quality of the company as an investment, and specific price levels or momentum indicators are of much less importance. There have been many instances where the a stock drops significantly shortly after being recommended, which again can cause some frustration, but unless there is a substantial change to the investment thesis, Motley Fool’s general view is that they are investing for the long term and if the stock pick plays out as expected, a small dip in price will not matter in the long term.
Motley Fool Supernova is not a hedged portfolio, nor is it open to non-Supernova universe investments. Supernova portfolios can only invest in either Rule Breakers stocks or David Gardner’s picks from Stock Advisor (Tom Gardner’s Stock Advisor picks are off limits as well). No other equities are eligible. This also means there are no fixed income investments such as bonds or passive investment tools such as ETFs.
There is also no short selling, no option strategies, nor any other hedging mechanisms (for a service with these mechanisms, see Motley Fool Pro).
I am undecided on Motley Fool Supernova. I’ve been a member since it opened in March 2012 and it’s been interesting to see this new service developing over the course of the last year. If you would have asked me 4 months ago, I would not have recommended the service, and was very close to ending my subscription and requesting my refund. But in the last few months, I feel that Supernova has made some major improvements and is shaping up into a valuable portfolio service.
The question on everyone’s mind when Motley Fool Supernova first opened was what value it would add beyond the memberships to Rule Breakers and Stock Advisor that come along with the membership. In the early months there was not a lot of content or guidance coming from the analysts above and beyond a short write up for each Buy recommendation. There was no discussion of why a certain recommendation was made at that point in time. Even the discussion boards for Supernova were mostly empty because everyone posts their stock-specific updates on the individual Rule Breaker or Stock Advisor boards. For a portfolio service, there was really no education or insight into portfolio management, risk allocation, diversification, etc.
That has all started to change. To their credit, the advisors have been very responsive to the users’ feedback and have started to make some of the changes that were requested. Each pick is now usually accompanied by more discussion on how that particular pick fits into the strategy of the portfolio. The weekly updates usually include more context as well as discussion on which stocks were considered but not picked that week. The forums have also started to host some helpful discussions that you can’t find on the Rule Breaker or Stock Advisor sites.
I am still on the fence about the service, but will likely wait a few more months before making up my mind whether or not to see it through. The performance is improving and the content is definitely better than it was a year ago. However I am still not sure whether I’d be better off just following the Monthly recommendations from the stand-alone Rule Breakers and Stock Advisor sites.
However, if you are the type of investor who either doesn’t have the experience or time to build their own investment portfolio, and you have a long term buy and hold philosophy, Motley Fool Supernova may be for you. You can just buy the recommended amount on the day of the alert, and not do much else in terms of research. For that type of investor, this is the main benefit. You pay a premium for that level of service, but relative to other investment portfolio subscriptions out there, the price is very reasonable.
You of course don’t have to buy every recommendation, and just use Supernova as a curator for all the various David Gardner stocks. But that limits the value of subscribing to a portfolio service.
Motley Fool Supernova is currently closed to the public after having just accepted a new influx of members, but it is likely to open again next year. As is usual with Motley Fool newsletters, they offer a trial membership so you can test it out.
Please leave a comment and share your own thoughts on Motley Fool Supernova.