Friday, January 11, 2013

Million Dollar Portfolio: Operated By Fools

The Motley Fool, previously derided here as a shallow and hypocritical source of hard-to-follow stock recommendations, has just published a Million dollar Portfolio recommendation for Aropostale (ARO). The new recommendation follows a "Buy More"  note in June of 2012 (with a "buy around" price of $20) with a recommendation to "Sell your entire stake" instruction while the shares sit south of $13. The day after The Motley Fool's Million Dollar Portfolio recommended increasing one's stake in ARO to 5% of the portfolio, ARO had closed north of $17.

Deriding the Aropostale trade (which was a "buy" because, in short, it copied fashions cheaper than fashions could be developed by firms taking a risk on innovative new looks) follows an earlier effort to lampoon the recommendation of Zipcar, which the Motley Fool suggested exiting following the news that Zipcar would be acquired for $12.25/share – well below the Million Dollar Portfolio's initial purchase at $18.31 in July of 2011, and even below its August 2011 purchase at $12.71.  In June of 2012 the portfolio issued a "Buy More" alert that it was a "buy around $20", though the Portfolio never actually bought any additional shares of ARO after August of 2011.  But back to the word "trade": Motley Fool publications laud Warren Buffett's "forever" holding period and advocate investing rather than trading, but it's amazing how many stocks (other than Berkshire Hathaway, and others I'd found myself before seeing the Fool's subscription services) don't last the three years the Fool says investors should target.

Perhaps because of the embarrassment of trailing the S&P 500 with so many of its picks, the Million Dollar Portfolio stopped reporting the performance of picks in comparison to the S&P 500 last year. At the time of writing, the portfolio as a whole still trails the S&P 500:

Of course, the performance of the portfolio doesn't include either the cost of the MDP subscription or the overhead of the personnel who publish it.  The portfolio doesn't represent The Motley Fool standing next to investors, taking the same risks with real money; it represents an advertising gimmick. Your own results – if you are lucky enough to guess which recommendations the portolio will actually pursue, itself – will be a bit worse because you will incur the subscription overhead. And maybe some Maalox.

The Million Dollar Portfolio isn't only failing in its mission to beat the S&P 500, it is failing in its basic claim to give users notice of its own trades in advance so they share the same investment returns (e.g., it advised buying more of a loser without actually putting the trade on its own transaction log). The service doesn't merely fail to provide what it plans, it is failing even to provide what it promises.  And that's pathetic.

The next time the Million Dollar Portfolio subscription opens to new members, the Jaded Consumer's recommendation is simple: skip it.

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