Abstract
Since March 2002, The Motley Fool’s founders, David Gardner and Tom Gardner, have published monthly stock recommendations under Motley Fool’s premium Stock Advisor service. In this paper, the authors investigate whether analysts’ recommendations can add value for investors by examining the performance of portfolios constructed based on Motley Fool’s recommendations. They evaluate the announcement effect on share price corresponding to the publication of stock recommendations. Additionally, the researchers examine holding period returns for a portfolio imitating the actions of Stock Advisor. They find portfolios composed of recommendations through Stock Advisor added value initially upon recommendation and across extended holding periods. Additionally, the authors find that the Stock Advisor sample outperforms other sample portfolios on a risk-adjusted basis and over several subperiods. The findings contribute to the literature on the usefulness of analysts’ recommendations in adding value to investors’ portfolios.
Highlights
Analyst stock recommendations are exceedingly prevalent and accessible, which is attributable to the progression of the Internet and mobile devices
We have examined the performance of securities recommended through Motley Fool’s Stock Advisor service
We find that the Stock Advisor recommendations do statistically outperform the matched samples and S&P 500 index, since the creation of Stock Advisor in 2002 regarding both short-term and long-term holding periods
Summary
Analyst stock recommendations are exceedingly prevalent and accessible, which is attributable to the progression of the Internet and mobile devices. Altınkılıç et al (2016) analyze post-revision returns of Cramer’s sell recommendations perdrift (PRD) following the revision of stock recom- sisted, while his buy recommendations generated mendations by sell-side security analysts. The holding period tors to profit from security analysts’ recommen- abnormal return after 250 days was 4.02 percent, dations They utilize consensus data from 1985 while after 500 days was 6.04 percent, both statisto 1996 and discover that investors who followed tically significant. Stock Advisor is deauthors use cumulative abnormal returns based scribed as: [An] investment service that helps any on the capital asset pricing model to evaluate per- level of investor beat the market, no matter how formance before and after the publication of a much time or money they have. You great stocks and the winning investment philosophy that’s given their readers massive returns
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