Do you want to invest in stocks with high growth potential?
Motley Fool Rule Breakers might be the investing newsletter you’re looking for. You get monthly stock picks of growing businesses that might be tomorrow’s Apple, Microsoft, or Amazon. These stocks might be what Amazon or Apple were in the 1990s. Don’t worry, you won’t be investing in penny stocks, options, or warrants.
Rule Breakers can be a good option when you already have an established stock portfolio.
While the potential reward is higher, these positions are still riskier than a “FANG” stock or a blue-chip dividend stalwart.
Rule Breakers Historical Performance
As of July 11, 2019, the Rule Breakers portfolio has outperformed the S&P by 75% since this newsletter launched in 2004.
If you think that’s impressive, the less-aggressive Stock Advisor service has outperformed the S&P by 90.2% since it’s 2002 inception.
In a world where passive index funds are are the most common investment option, the Motley Fool offers a legit way to successfully invest in individual stocks.
Still interested in this somewhat different stock investing newsletter? If so, keep reading.
What Is Motley Fool Rule Breakers?
Long-time investors are familiar with The Motley Fool. They’ve been providing investment advice since the 1990s through printed books and online content including written articles and investing podcasts.
You don’t have to be a high net worth accredited investor to invest in Rule Breaker’s picks. These aren’t penny stocks or volatile commodity stocks. You’re essentially investing in small-cap and mid-cap stocks. Two recent suggestions include Roku (Nasdaq: ROKU) and Upwork (Nasdaq: UPWK) to give you an idea of what you might invest in.
Rule Breakers Investing Strategy
You can watch the above video to get a better feel for the Rule Breaker investing strategy.
6 Signs of a Rule Breaker
When picking stocks, Rule Breakers adheres to these six rules to help pick winning stocks:
1. Top dog and first mover in an important, emerging industry
2. Sustainable advantage gained through business momentum, patent protection, visionary leadership, or inept competitors
3. Strong past price appreciation
4. Good management and smart backing
5. Strong consumer appeal
6. Proof that it is overvalued according to the financial media
Motley Fool assigns a 25-point risk rating to each stock pick. The higher the rating (i.e. closer to 25), the riskier the stock. Of course, that means potentially higher returns than investing in lower-risk stocks (i.e. closer to 1).
Some Rule Breakers stock picks have risk ratings as high as 20 and as low as 5 or 6. Most likely, no Motley Fool pick is going to be below 5 in any of their premium services.
Expect a fair number of these picks to have wide price swings. These stocks aren’t household names yet so they have periods of strong growth and correction. Like Stock Advisor, Rule Breakers plans on holding each pick for at least three years as they predict these stocks will outperform the S&P 500 long-term.
My Experience with Rule Breakers Stock Picks
In my experience, Rule Breakers tends to invest in these types of growth stocks:
- Foreign-based companies (most likely Asia)
- Recent-IPOs of little-known companies
- Companies in emerging industries like artificial intelligence, biomedical, or cloud computing.
All stock picks trade on the major U.S. stock exchanges. So, it’s possible for any American investor to buy these stocks from their current brokerage. Or, from a high-quality free brokerage like M1 Finance.
While not every stock pick is a winner, Rule Breakers has been right more times than not. Some of their picks are still active from 2004, like Intuitive Surgical (Nasdaq: ISRG).
Motley Fool Stock Picks
There are several premium Motley Fool investing newsletters. Two of the most popular (and most affordable) are Stock Advisor. Rule Breakers is by far the more aggressive of the two. They try to invest in smaller companies or those where the growth potential is greater than the volatility.
Below is an example of what I mean about when Rule Breakers recommends a stock compared to Stock Advisor.
As you can see, Rule Breakers subscribers were recommended ANET with a $73.74 share price. Stock Advisor readers may have first heard about this stock three years later with a $176.74 share price. Buying and holding ANET from the two recommendation dates would turn a $1,000 investment into $2,297.62.
Obviously, not every Fool stock pick will have this stellar performance, but you get the idea of what to expect.
Two Monthly Stock Picks
You receive new stock picks every second and fourth Thursday. In most cases, this is a new stock not already in the Rule Breakers portfolio. Sometimes, they re-recommend open positions that still have more growth potential ahead.
Each stock pick includes a brief writeup telling you why the stock is a good buy. A smaller section touches on the potential risks and when you might sell. Like any newsletter, Rule Breakers is very optimistic about their newest picks, so (once again) perform your due diligence before buying a recommendation.
Rule Breaker stock picks can be more volatile than what you already hold. You might try buying small positions and scaling up to diversify your portfolio as much as possible. Plus, you may have the best chance of outperforming the S&P 500 long term. Assuming that’s the benchmark you want to beat.
As always, do your own research for the stocks Rule Breakers recommends. For instance, you may decide not to invest in Chinese companies or love-hate ones like Tesla because you like or understand that niche.
When a Fool recommendation’s share price moves up or down 10% in a trading day, you can expect a brief 10% writeup. This article usually digs into the cause. Use these articles to determine if your investing thesis is still intact.
You must “follow” a stock in the Rule Breakers dashboard to receive the 10% Promise summaries.
When Rule Breakers no longer believes a stock pick can outperform the broad market, they will issue a sell alert. Usually, this comes as an option of last resort. There aren’t any trailing stops, so if you want to sell before Rule Breakers does, you can. You might consider this when the share price drops more than usual and doesn’t seem to increase.
What Does Rule Breakers Offer?
With active recommendations hailing back to 2004, it can sometimes be difficult choosing which stocks to buy first. Rule Breakers breaks down their best current picks into two sections: Starter Stocks and Best Buy Now
Rule Breakers Starter Stocks
With more than 130 companies with active recommendations, some stocks are going to be better plays than others. I recommend looking at their Starter Stocks. The Fool believes these nine starter stocks are some of the best in the Rule Breakers portfolio for producing consistent long-term performance.
Rule Breakers updates this list as needed and it currently contains nine stocks. Motley Fool suggests buying at least three starter stocks with a portfolio of at least 15 stocks. These stocks can still be volatile, but they can be more established than recent IPOs. Chances are, you’ve heard of at least a few of these starter stocks. Two I”ll share are Intuitive Surgical and Shopify.
Rule Breakers Best Buys Now
In addition to the Starter Stocks, Rule Breakers updates the “Best Buys Now” each Thursday. According to Motley Fool, these are the stocks trading at the best current share price in relation to their potential value and their competitors.
Some of these stocks overlap with the Starter Stocks. If you like these stocks, being a best buy now can be the reassurance you need to buy a position.
View All Active Stock Picks
Clicking the “Performance” button on the Rule Breakers dashboard. This lets you see all the open stock picks. You will see some names you know like TripAdvisor, Wayfair, Tesla.
But, unless you leave overseas or work in the high tech sector, there are lots of names you won’t recognize at first glance like MongoDB, Baozun, or Bilibili.
Most investment newsletters publish bonus reports at least once a year. Usually, these are teaser reports to attract new subscribers. Paid subscribers can view the reports for free. Some past bonus reports include:
- 1 Total-Conviction Stock for Cable TV’s “Ticking Time Bomb” (Hint: It’s not Netflix)
- iPhone Supercycle
- The Next Amazon.com
What I Like About Rule Breakers
- A low-cost way to learn about lesser-known growth stocks
- More aggressive than most newsletters with a smaller subscription fee
- Long-term winning track record
- Starter Stocks and Best Buys Now makes it easier to pick winning investments
What I Dislike About Rule Breakers
- Above-average volatility can be too much for most investors
- Need several thousand dollars of cash to buy enough stock picks to absorb the extra risk
- Only a good option once you have a diversified portfolio and want to “speculate” with high-risk growth stocks
Who Should Join Rule Breakers?
- Aggressive investors with a high risk tolerance
- Investors who don’t want to invest in “penny stocks”
- Investors searching for tomorrow’s potential leaders
Rule Breakers vs Stock Advisor
Admittedly, Rule Breakers isn’t for every investor.
I subscribe to both Stock Advisor and Rule Breakers. And, I find myself using Stock Advisor more often. There are stock picks are less volatile which aligns with my investing style and portfolio allocation more.
You can read my Stock Advisor review to find out why.
Both services recommend different stocks, so there’s very little overlap. In theory, you can subscribe to both and invest in four new stocks each month.
If you only want to choose one platform, here’s a quick comparison below.
Rule Breakers costs $99 for the first year then $199 after that. Although you will most likely be able to renew at $150 with their current promotions.
At my renewal, they emailed a special link that takes $50 off the renewal price. The email comes 30 days before your renewal date. Other subscribers report a similar discount. It’s possible to renew for $249 instead with the discount.
Joining Rule Breakers on the Motley Fool website costs $299. Use this special link to pay $99 for Rule Breakers.
Rule Breakers vs Stock Advisor
The two cheapest Motley Fool premium products are Rule Breakers and Stock Advisor. I personally think these are the only two Fool products you should consider purchasing. The cost is reasonable and you will have more stock recommendations than you can or will invest in.
Stock Advisor is Better…
Go with Stock Advisor if you want lower-risk stock picks. Each month, you get a lower-risk and higher-risk pick. Although the higher risk pick isn’t always as volatile as Rule Breakers, it’s not far from it. The low-risk pick is more of a value play with less potential growth but also less volatility.
You’re also going to invest in more well-known companies including PayPal, Mastercard, and Markel.
This is also a better option if you don’t have as much cash to invest on a regular basis. The recurring subscription fee is $199–$100 less than Rule Breakers.
Related Article: Read my Motley Fool Stock Advisor review to learn more about this less-aggressive premium investing newsletter
Rule Breakers is Better…
Go with Rule Breakers if you have a long investing horizon or are comfortable with more volatility. As long as you do your due diligence before investing, you can be a successful investor. But, expect a few more losers than with Stock Advisor.
But, during times of healthy markets, you might get better returns. Even if you only use Rule Breakers for a small part of your portfolio and primarily rely on Stock Advisor, Rule Breakers can be a good add-on.
With almost 15 years of beating the S&P 500 long-term, Rule Breakers is a successful way to buy smaller individual stocks and profit. The low subscription fee means you have more money to invest in your twice-monthly picks. Although you will need to invest regularly to capture the best potential returns, this is a legit investing newsletter if you can stomach the additional risk that other newsletters try to avoid.
Are you going to try Rule Breakers? Leave a comment and let us know what you decide.