There’s a lot of possible investments that are out there, with perhaps the most commonly mentioned being stocks. They are one of the single biggest investment categories, next to bonds and mutual funds (and since most mutual funds invest heavily in stocks, stocks definitely have a pretty heavy advantage there, as well). If you are hoping to build a good investment portfolio, a knowledge of how stocks work and how to identify good stocks is essential. But just how do you gain such knowledge?
The Motley Fool Million Dollar Portfolio seeks to share a guide to stocks and individual stock investing. Written by David and Tom Gardner, the founders of The Motley Fool, it shares advice on how to evaluate stocks in order to choose the ones that would make good investments. It seeks to help readers build, as the sub-title notes, a ‘panic-proof investment portfolio’. Does it succeed in providing those basics, or does make you a fool for wasting your time? Let’s find out!
Summary of The Motley Fool Million Dollar Portfolio
The Motley Fool Million Dollar Portfolio opens with a discussion of how the fund of the same name was created, the principles on which it operates, and how those principles laid out in the book. There is then an opening Note on the Financial Collapse of 2008 (particularly pertinent since the book was published in 2009), providing a short view of what led to the collapse and how to handle future collapses when they occur.
Chapter 1 – Getting Started
Chapter one provides an opening explanation for what the book intends to cover, primarily the importance of identifying and buying good stocks. It suggests buying no less than twelve stocks and holding them for at least one year, to condition yourself to be patient and handle the ups and downs of the stock market. It closes with a note that all the examples covered in the book are going to be dated by the time they are read, and that readers should visit the Motley Fool website to get more up-to-date information.
Chapter 2 – Why Great Investors Are Odd
There are factors in the human mind that keep most people from investing successfully, from buying and selling at the wrong times to overestimating our investing skill. This chapter discusses many of them, and notes how this book attempts to help counter them, in order to make the reader into, as the Gardners call them, Capital-F Foolish investors (that is, those who are successful in investing).
Chapter 3 – Your First Stock
The third chapter provides a walk-through on how to examine stocks for possible investments. It gives an overview on how to come up with possibilities from your daily life, some basic financial characteristics to use to evaluate the company, and a few traits to look for in the management staff as you choose your first stock to buy. A short guide is provided on what you should learn from this first stock performance, whether it is successful or not.
Chapter 4 – Dividend Dynasty
The next five chapters (and the bulk of the book) cover different areas of the stock market and how to evaluate the stocks within for good buys. Chapter four looks at finding good dividend paying stocks, focusing on finding companies with solid financial balance sheets and steady income, noting a few pitfalls that dividend investors can face (overloading on stocks in particular industries, like financials, for example). Most of these chapters, including this one, end with several successful Motley Fool recommendations in the area and (one failure, to demonstrate the lack of perfection in any stock picking).
Chapter 5 – Blue-Chip Bargains
Chapter five looks at value investing, particularly focusing on large, popular (blue-chip) companies and their stocks. It covers more closely how to determine the underlying value of a company and how to decide if it is worth the cost of investment. There is a point made that while such stocks are profitable, they aren’t always able to be sold for their full value, allowing investors an opportunity to gain money by investing when the price is low.
Chapter 6 – The Treasures of Small-Cap Investing
On the other side of the scale (so to speak), we have the small scale stocks. Such stocks can be incredibly profitable with their high ability to rise, but that they are also riskier and can lose all their value much easier than larger stocks. There are several factors given to consider when pondering a small-cap stock investment throughout the course of this chapter.
Chapter 7 – Risk Takers and Rule Breakers
While the previous two chapter focused on value stocks, chapter seven looks at growth stocks and how to find the ones with most chance to show real growth. As the title notes, this mainly means finding companies that are going outside typical boundaries and doing things that aren’t usual in their field, making them more likely to increase greatly in value if they are successful.
Chapter 8 – We Are the World
Chapter eight finishes off the investing strategy section by looking at international stocks. It doesn’t give a single investment strategy, instead noting that with the wide variation of stocks and countries where the businesses are located, it’s impossible to give hard and fast rules that will always apply. There are notes that with increasing global interconnectivity, it’s becoming harder to distinguish between ‘foreign’ and ‘domestic’ when it comes to companies and stocks. That said, it does share some of the complications that arise when trying to invest internationally (the differences in currency used, for example).
Chapter 9 – CAPS: The Power of Community Intelligence
This short chapter looks at the community investment site provided on the Motley Fool website, noting how it allows readers to put in their thoughts on particular stocks and how that data is used to rank stocks on their attractiveness to the community overall. The Gardners also discuss how this information can be put to work as you build your own portfolio.
Chapter 10 – Your Next Million
Chapter ten covers asset allocation and how to put all the areas of investment that have been covered together in one portfolio. It discusses how spreading assets over different areas of investment will help to cut down the risk of losses and actually increase your profits over most cases. There are numerous historic examples provided, as well as suggestions how to build a portfolio overall (including some discussion on areas of investment other than stocks) and methods of organizing your investments across multiple types of accounts.
Chapter 11 – What Next?
The final chapter is very short, simply giving encouragement to buy stocks, keep learning, and visit the book’s website.
The book closes out with two Appendices. Appendix A is effectively a chapter in itself, discussing mutual funds and how to choose the right ones. It suggests focusing on actively managed funds above index funds, and discusses how to evaluate actively-managed funds to choose those that can provide earnings above that of index funds in the same category. Appendix B provides a short list of further books to read as you attempt to learn more about investing.
- Very Insightful Into Stock Investing: The Motley Fool Million Dollar Portfolio provides plenty of interesting ideas about how to invest in stocks and how to evaluate your potential stock purchases.
- Quite Humorous: As you might guess from a book with ‘Fool’ in the name, the book is more light-hearted than most investment books, and there are more than a few jokes and other sources of humor within the book’s pages.
- Encouraging for Further Research: One thing constantly recommended is the need to do lots of research, both when you are first learning how to invest and when you are choosing (and monitoring) stocks for your own investments.
- Constant Pimping: There are numerous mentions of the pay investment advice services offered by The Motley Fool, both at the end of each strategy chapter and throughout the rest of the book.
- Minimizing Non-Stock Investments: While acknowledging the importance of investments in mutual funds and other non-stock investments, there is little said about them until the end of the book (and even there, not too much is said), with the emphasis solely on individual stocks.
- Dated Examples: Although readily acknowledged by the authors, the examples are still five (or more) years old (and take up much of the book), so taking investment suggestions from the book is not a good idea.
The Motley Fool Million Dollar Portfolio provides a pretty good introduction to stock investing. There’s definitely a lot more than the book covers in order to build a truly diverse portfolio (which is touched upon at the end of the book), given that it only covers stocks and promotes them (and The Motley Fool’s paid services) incessantly. But if you’re looking to build an individual stock portion for your portfolio, it is a good resource, sharing solid advice on evaluating stocks and building investments in them.