David and Tom Gardner may not take themselves too seriously in their public personas, but their investing strategy is anything but foolish. The brothers behind The Motley Fool have helped millions of investors understand how to uncover fast-growing companies with durable fundamentals and compelling value.
Their investing framework — which Validea has modeled in our Fool-inspired strategy — emphasizes small-cap growth stocks with strong profit margins, healthy cash flows, manageable debt, strong earnings and sales growth, and insider ownership. A central focus is the PEG ratio, which compares a stock’s P/E to its earnings growth. The Gardners dubbed this the “Fool Ratio” and use it to identify growth stocks trading at reasonable valuations.
Validea’s Motley Fool-inspired strategy captures the essence of their methodology and translates it into a systematic, rules-based model.
The focus is on:
- Strong profit margins
- Above-average earnings and sales growth
- Reasonable valuations based on the PEG (or “Fool”) ratio
- Price strength and momentum
- Low debt and healthy cash flow
- Significant insider ownership
The strategy loos for undiscovered gems — companies too small for large institutions but with the financial traits and momentum that often precede long-term outperformance.
Performance Overview (July 15, 2003 – 2025 YTD)
Since inception, the Small Cap Growth Investor (Fool inspired) Portfolio has returned 13.2% annually, more than 4.5 percentage points ahead of the S&P 500. A $100,000 investment would have grown to $1.5 million, compared to just $500K in the benchmark.
Returns are model returns and do not reflect actual trading. Full performance disclaimer
Here’s the year-by-year performance with a visual indication of whether the model outperformed (✅ green) or underperformed (❌ red) the S&P 500.
| Year | Fool Portfolio | S&P 500 | +/- S&P |
|---|---|---|---|
| 2003 (7/15/2003) | 19.8% | 11.1% | ✅ +8.7% |
| 2004 | 22.5% | 9.0% | ✅ +13.5% |
| 2005 | 9.6% | 3.0% | ✅ +6.6% |
| 2006 | 22.2% | 13.6% | ✅ +8.6% |
| 2007 | 23.3% | 3.5% | ✅ +19.8% |
| 2008 | -25.0% | -38.5% | ✅ +13.5% |
| 2009 | 38.5% | 23.5% | ✅ +15.0% |
| 2010 | 19.2% | 12.8% | ✅ +6.4% |
| 2011 | 1.0% | -0.0% | ✅ +1.0% |
| 2012 | 4.7% | 13.4% | ❌ -8.7% |
| 2013 | 61.1% | 29.6% | ✅ +31.5% |
| 2014 | 1.6% | 11.4% | ❌ -9.8% |
| 2015 | 9.0% | -0.7% | ✅ +9.7% |
| 2016 | 16.6% | 9.5% | ✅ +7.1% |
| 2017 | -3.0% | 19.4% | ❌ -22.4% |
| 2018 | -14.3% | -6.2% | ❌ -8.1% |
| 2019 | 22.2% | 28.9% | ❌ -6.7% |
| 2020 | 10.6% | 16.3% | ❌ -5.7% |
| 2021 | 51.6% | 26.9% | ✅ +24.7% |
| 2022 | -18.9% | -19.4% | ✅ +0.5% |
| 2023 | 25.1% | 24.2% | ✅ +0.9% |
| 2024 | 28.9% | 23.3% | ✅ +5.6% |
| 2025 YTD (6/20/2025) | 3.5% | 1.5% | ✅ +2.0% |
✅ Green = Outperformed S&P 500
❌ Red = Underperformed S&P 500Current Motley Fool-Based Portfolio (as of June 2025)
Below are the 10 stocks currently held in the strategy, including links to their Validea Guru analysis pages:
| Ticker | Company | Validea Analysis | Buy Date | Score | Return |
|---|---|---|---|---|---|
| KINS | KINGSTONE COMPANIES INC | View | 4/25/2025 | 91% | -18.67% |
| RDVT | RED VIOLET INC | View | 5/23/2025 | 91% | -3.71% |
| ESQ | ESQUIRE FINANCIAL HOLDINGS INC | View | 3/28/2025 | 87% | 18.97% |
| SEZL | SEZZLE INC | View | 3/28/2025 | 85% | 318.13% |
| IDT | IDT CORP | View | 6/20/2025 | 85% | 0.00% |
| HRTG | HERITAGE INSURANCE HOLDINGS INC | View | 4/25/2025 | 85% | 19.36% |
| ATLC | ATLANTICUS HOLDINGS CORP | View | 6/20/2025 | 83% | 0.00% |
| HCI | HCI GROUP INC | View | 5/23/2025 | 83% | -11.04% |
| FTK | FLOTEK INDUSTRIES INC | View | 6/20/2025 | 83% | 0.00% |
| HIPO | HIPPO HOLDINGS INC | View | 6/20/2025 | 83% | 0.00% |
What Makes the Strategy Work
The Fool approach is all about finding scalable businesses that are just starting to gain traction — but still under Wall Street’s radar. Combining quality fundamentals, growth, insider conviction, and manageable valuations makes this a model with serious long-term appeal.
While the strategy doesn’t win every year, it has outperformed in 16 of the last 22 full years — a testament to its durability and alpha-generating potential.
Further Research
🔎 View Full Motley Fool Strategy & Model Portfolio: Explore Validea’s Fool-Based Model
🎧 Listen & Learn: Tune into the Excess Returns Podcast to learn about The Motley Fool Small Cap Growth Model or watch our Strategy Overview.
🧪 Experiment with the Strategy Matching Tool: Find which ETF strategies most closely align with the Fool model on Validea’s ETF Matching Tool.
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