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Motley Fool Investment Guide Review

The Motley Fool Investment Guide was the first book I read about investing. It provides great information about why you should invest in the stock market instead of mutual funds and even index funds. For new investors that think stocks are too risky or complicated this is the right book for you.

The book is broken down into a series of topics and is geared toward beginner investors. Let’s take a brief look at each part of the book and then I will give you my overall thoughts.

Part I: An Introduction to The Motley Fool

Part I is an introduction to the Motley Fool universe. Brothers David and Tom Gardner started the Motley Fool in 1993 with the goal of helping the world invest better. They have evolved from a mailed newsletter to an AOL platform, to the global Motley Fool ecosystem they run today.

Part II: A Look At Mutual Funds

Possibly the most important part of the Guide for people that are unsure where they want their money invested. Part II takes a look at mutual funds and passive funds (index funds and ETFs). The Motley Fool preaches the belief that individual investors can beat the stock market and Part II starts to explain why they believe so strongly that this is possible.

Part III: Building A Foolish Investment Portfolio

Part III finally starts to dig into why investing in the stock market can be so lucrative with the right mindset. In Part III, David and Tom give some insight on the steps to take to start investing in stocks. This chapter will hopefully get you excited about the possibiilities of investing in individual companies.

In the latter half of Part III, David and Tom delve into what may be the most important factor in determining your future gains: your behaviour. They address what they think are major behaviourial biases that harm individual investors.

Part IV: Companies and Quality

Part IV is an introduction to actual stocks and how they are classified. They explain market capitalization and why blue-chip stocks may be a good fit for you. The second part of the chapter looks at why small-cap stocks ($300 million to $1 billion of market cap) may be a better option. Small-cap stocks have historically produced excellent returns.

Part V: Tom Gardner’s Investing Philosophy

Part V gives an in depth look at how Tom Gardner identifies and invests in individual companies. Tom relies on 5 categories when assessing a possible investment.

  1. Culture: What is the company culture and how do they treat employees, customers, suppliers and stakeholders?;
  2. Strategy: What is the company’s business model? What advantages do they have? What competition do they face?;
  3. Financials: What are the underlying financials of the company? How much debt, if any, do they have? Are they profitable?
  4. Safety: What are some of the ways the business could run into trouble?
  5. Valuation: Is the market giving the company too much or not enough credit for the quality of their business?

Tom uses these factors when assessing a company. Contrary to many investors, Tom focuses on the price of the stock last. Many investors start with valuation as their most important factor while Tom argues that if you are buying a company to hold for the next five plus years, valuation loses some of its importance.

Part VI: David’s Rule Breakers Investment Rules

David and Tom share many of the same investing philosophies however they do differ slightly. David focuses on disruptive small-cap companies that may have more risk, but more upside, than companies Tom is typically drawn to. In this chapter David breaks down 6 signs of a rule breaker investment.

  1. “Top Dog” and First Mover: David likes companies that have a dominant market share or are innovators that created the markets they are in (think Uber in ride sharing or Netflix in streaming video);
  2. Sustainable Advantage: Successful businesses attract competition. How well can a company fend off competition and keep its advantage?
  3. Past Price Appreciation: David believes that stocks that have risen in price will continue to do so.
  4. Good Management: David, like Tom, believes that leadership and culture matter a great deal to a companies success.
  5. Strong Consumer Appeal: How strong is the company’s brand? David believes that companies that have established a strong brand have also built out a loyal customer base. This translates into the ability to increase their prices without driving customers away.
  6. Overvalued, according to the media: David explains why he has no issue buying a company after it has doubled or tripled. David argues that the market is typically correct when assigning a high price to companies. Companies that have elevated valuations tend to be quality companies with strong fundamentals.

Part VII: Digging Into The Digits

Tom and David jump into a more number driven analysis of companies by exploring some of the metrics they look for when assessing a stock. They use a case study of Messngr, a fictional company, to explain the financial metrics you should use when assessing a company.

They then dive into the three financial statements that every company releases each and every quarter: the income statement, balance sheet, and cash flow statement.

Part VIII: Some Advanced Topics

In Part VIII David and Tom explore some more advance topics that investors may want to use in their portfolio. These topics include: options, margin, and shorting stocks.

Motley Fool Investment Guide Review

The Motley Fool Investment Guide was the very first book I read about investing. It tackles the most glaring concerns a beginner investor has: What should I invest in? How do I invest in stocks? What stocks should I pick? The book also reduced some of the fear I had investing in the stock market.

The book teaches you that investing in individual stocks isn’t a wild guess. If you do your research and invest in companies that you believe in you can minimize risk and achieve market-beating returns.

Investing Frameworks

David and Tom each describe their investing framework and how they apply it. Although they are different they share lots of similarities. After reading each of their frameworks you can decide which one suits you best.

The best thing about investing is that you can make their frameworks your own by adding or subtracting additional factors that you use to asses companies.

Practical Knowledge

The book gives tons of practical knowledge that can be applied immediately after reading the book. You can pull up the financials from any of the companies you deal with on a day-to-day basis to try and get an understanding of how the business operates. David and Tom advocate using Glassdoor to get a sense of a company’s management and culture.

The explanation of the three financial statements I found especially helpful. Having never read a yearly report I had no idea what these statements meant. The numbers on the page didn’t mean anything to me. Their explanation of the income statement, balance sheet and cash flow statement are a great introduction.

I’ve now read The Motley Fool Investment Guide three times. I continue to come back to the book after learning more about investing. The ideas and concepts they describe in the book have become more clear as I’ve continued to develop my understanding of investing concepts. Parts of the book that I read previously and didn’t fully comprehend now make more sense, which is encouraging.

My Book Review Classification

I’ve come up with a quick classification system for the books I have reviewed.

Buy: I think you should buy the book. The concepts and teachings in the book are ones that you will continue to revisit so having the book on your shelf is an advantage.

Borrow: Many of the books I review are available at your local library. The library is a great resource and an easy way to save a bit of money. Some of the books are not available at the library so this may not be an option. A “borrow” book is a book I think is worth reading but one that you might not revisit or refer to when researching companies.

Burn: A book classified as a “burn” is one I didn’t finish or wish I hadn’t read. Let me spend my time reading these “Burn” books so you don’t have too.

Motley Fool Investment Guide Review Rating

I Rate The Motley Fool Investment Guide As A:

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I swear I proof read all of my posts multiple times but always seem to miss errors. Apologies in advance.