Tim Beyers is a lead analyst at The Motley Fool and a frequent guest on Motley Fool Money. In this podcast, Tim talks with Motley Fool host Mary Long about:
- What convinced him to buy Amazon for the first time (and why he sold it two years later).
- Unit economics, and one company that excels at it.
- The relationship between enthusiasm and education.
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This video was recorded on August 25, 2024.
Tim Beyers: So that ability, I think, in investing and in life, generally, the ability to humbly ask a question of whether or not I heard what I heard, does this make sense? If it doesn't, what am I missing? Then gradually, I keep accumulating little bits of extra knowledge. It's not that I have deep expertise in this, Mary. It's that I have learned enough over time to be able to ask a better question than I used to be able to ask.
Mary Long: I'm Mary Long and that's Tim Beyers. He's a lead analyst at the Motley Fool, a frequent guest on this show, and a co-host on this Week in Tech, a weekly show on our Members only Live Stream. I recently caught up with Tim to learn more about how he went from a communications career to being one of our resident tech experts. We also discuss the magazine cover that originally convinced him to buy Amazon. How time has made him a more conservative investor and one company that excels at Unit Economics.
We have dedicated some time this summer to getting to know a handful of our Foolish analysts that are frequent guest on the show a bit better. Today, we're chatting with Mr. Tim Beyers out of Denver, Colorado. Tim, thanks for being here.
Tim Beyers: Thanks for having me, Mary. Fully caffeinated, ready to go.
Mary Long: Fully caffeinated and ready to go. When Tim and I are both in the office together, we are two of the coffee fiends that can constantly count on each other to brew a pot of coffee. Tony Southcode is another one of those coffee loving Fools.
Tim Beyers: That's a fact.
Mary Long: Tim what is the original story of that phrase though, because I've heard you say it a million times, but I don't quite know how it came about.
Tim Beyers: I think it came about from former Fool Chris Hill, who, like us, he is in that class of Fools who just, like, always had a cup of coffee. Bill Barker is in this class as well. I always felt like it was my greeting to Chris, like are we fully caffeinated? Yes. We are fully caffeinated, and we are ready to go. That would be my signal that, we are doing Motley Fool Money. Let's go.
Mary Long: Let's ride. Love that. Tim, let's maybe start at the very beginning. When did you get started investing, whether it was professionally or as a hobbyist?
Tim Beyers: Oh, boy. I got interested in investing all the way back in high school. I was in a stock market club, whereby, I don't know if I have this right. I loosely recall as coming third in the state of California for being just outrageous and picking a lot of horribly volatile penny stocks, so I would not recommend that. [laughs] Not foolish investing at all. But some of this came from a friend of mine growing up, whose dad was very much into stock investing, and that was just part of his DNA. That was something very interesting to me, so I did not grow up with it in the family, it was more tangential than that. I always had an interest, so by the time that I encountered the Motley Fool Investment guide, a few years into my career, this is, I'm going to say 1996, maybe 1995, probably 1996. I read the investment guide, and I immediately went all in. I was just, like, completely enthralled by it. I was reading things at the Fool. We don't publish these things anymore, but we used to have at the Fool these regular missives out to membership that you could read every day, and usually like two or three times a day, you'd get Breakfast Fool, Fool on the Hill, and these were like little news bites that you would get every day. I'd get the Fool Watch daily, the Fool Watch weekly, and I would be reading this stuff. It would come in my inbox. I'd be reading it all the time. Long before I was an analyst at the Fool, I was a voracious reader of our content. Friends of mine today who I've known for a long time, long before that, I was readers. I was a reader of Bill Mann, long before I knew and made fun of Bill Mann [laughs] on the Morning Show, I would read his stuff. It's just funny that way.
Mary Long: What was it about the Motley Fool Investment guide that clicked for you?
Tim Beyers: That it described a process of business focused investing that I found simple, attractive, it's very empowering. It's written in the spirit of what I still consider for most investors, the best get started guide. You can't go wrong with the Motley Fool Investment guide. But if you want a super basic get started guide for business focus investing, like just proving that you can do it. One up on Wall Street from Peter Lynch is by far the best, and you don't have this today, Mary, so this is a bit of a cultural shift that I think made the investment guide so powerful in its time. I remember this there were TV ads from big banks, and they were just the most insulting, really like offensive ads. One of them that I remember distinctly, I'm not going to get it right word for word, but it was like a doctor, or like, somebody who was a patient that was going to do surgery on themselves, instead of the doctor. The message of it was, like, you wouldn't do surgery on yourself. Why would you invest by yourself? The message coming back from Wall Street at that time is like, you can't do this. You aren't capable. You have to pay us outrageous amounts of money. You do need to pay transaction fees. You do need to pay broker fees. Who do you think you are and what are you doing? I can imagine as this is true of every young person ever, I'm in my 20s, I know a little bit about this. I know that people do invest, and so it was almost like a screw you to Wall Street, so that appeals to somebody who's young, hungry, interested. I'm like, yeah, that's right. I can do this, is very empowering. Does that make sense?
Mary Long: Totally make sense. Plus, when you're going, wait, I can do this, I'm thinking, yeah, of course, you can do this. You're Tim Beyers you came in the third in California stock market class.
Tim Beyers: Come on. I should not get any credit for that one. [laughs]
Mary Long: I take it that that stock market class did not necessarily inform your investing philosophy when you found.
Tim Beyers: No. It was just like, that's the adrenaline rush of investing. Remember, at that time, I was either, what? Sixteen or 17, so I really knew nothing. I did not get schooled about investing until I started reading things like the Motley Fool Investment Guide. You should know that I read the Motley Fool Investment Guide, I got way out over my skis. I got way too excited. I was not thoughtful at all, and so this is the time, like in 1999, I buy my initial shares of Amazon when Jeff Bezos appears on the cover of Time Magazine, that's not an investment thesis. He appears as person of the year on the cover of Time magazine. That's not an investment thesis that is a speculation. Within two years, when the stock falls to what is today, a split adjusted price of $0.35 a share, and I sell it. That is not a sell thesis either, so what it did is it fed my enthusiasm, but enthusiasm without understanding and knowledge is dangerous. Enthusiasm with knowledge, context, understanding is powerful. But you see how wide that gulf can be.
Mary Long: Yeah. But enthusiasm can lead to understanding. That can be the door that opens up.
Tim Beyers: Totally.
Mary Long: You realize, just as you've just described, oh, wow, when I got into this, I actually had no idea what I was doing. There was very little thought behind it. But now I moving forward, I have this desire to fill that void and develop understanding so that I don't make a senseless decision, be it a purchase, a sell, what have you, again.
Tim Beyers: Right. When I learned that, the beauty of that Amazon mistake and what happened after that, this is like 2001, and I didn't join the Fool until 2003. I spent the next two years reading. I sold everything, I went to cash, and I just spent the next two years really digging in, really reading, learning everything I could. I read as many books as I could get my hands on. I read, like the Intelligent investor, Benjamin Graham. I read the original Roger Lowenstein, Buffet biography. I read one up on Wall Street, I read the sequel, Beating The Street. I read about financial statements, I read the Money Masters, I read just about anything I could get my hands on that were books that the Fool was really recommending, read another great book Joel Greenblatt, You too could be a Stock Market genius, great book. It was only after I had ramped up my learning, and I will say the thing that changed everything is people know this. I was in the PR and marketing field, and I graduated with a master's degree from Syracuse University in public relations. I done that. I've been a communications major all the way through. I should have been a history major. I like history a lot more, but that was like practical at the time, so I did all this. I got into Syracuse, I got my degree. I was working in tech doing PR and marketing, I was writing things, pitching things, all of this stuff, and learning how to communicate highly complex technologies. At the time, I really thought that I could do it, but I didn't have a way to prove it until November of 2003 when the Fool for the first time in, I don't know how long, they had an open call for contract writers. I said, hey, if you want to do this, it was in one of those Fool Watch emails, Mary, I saw this.
Mary Long: That you were voraciously reading?
Tim Beyers: Yeah, it's like, I'm going to do this, and I spent a month digging in, really doing a deep thesis work on stock. I submitted my entry, and our managing editor at the time, man named Bob Bobala came back to me, wrote me a note and said, hey, we're going to buy this. What else you got? That's how it started.
Mary Long: And here we are. [laughs]
Tim Beyers: Almost 21 years later.
Mary Long: Tim, one of the things that's fascinating to me is it sounds as though you're investing education. That you're entirely self taught, just that description of like, I literally took two years, and I consumed everything I could on the subject. I knew that you came from this PR and marketing background, and so when you talk about, I had this communications degree, I go work at tech companies, and I really learn how to communicate complex tech topics to Layman. That all makes sense. But I also think of you today as truly an expert in tech, not just as someone who's able to communicate complex topics, but who really knows the nitty gritty of what's happening at so many of these tech companies. Is that also self taught? Do you attribute that knowledge to the communications background? It's impressive to me if the answer is yes [laughs]
Tim Beyers: I don't know, but I would say learning tech is like learning another language. That's what I would say it is. I don't think it was a communications background. I think it was a lot of generosity from a lot of people willing to spend time with me, to teach me things that I didn't know, and then just sheer immersion into the field in order to learn the language of that industry. Some of that was like immersive reading. A lot of it was talking with people, recognizing that I didn't understand this particular dialect, which is where I failed in my tech career, and I did. I had some spectacular flame outs. It was because I had two things that were wrong. I was too cocky at the time. I thought I knew everything I needed to know. I knew none of what I needed to know. Then I did not course correct, and I flamed out spectacularly. Then by virtue of that those failures, they teach you humility, which you absolutely need, and I did, thankfully, through some real pain, gained some humility there. I have learned since that there is no substitute for talking with experts who can help you. The best way to learn in my opinion Mary is, this is the framing that I use, and I'm sure you've heard me use this, so I'll be talking with our friend Tim White, and Tim will be explaining something complex to me, and I'll use this particular framing. I'll see the smile on your face if you recognize this framing. Then what I will say is, let me see if I heard you correctly.
Mary Long: Yeah.
Tim Beyers: Yeah, you're shaking your head.
Mary Long: I'm shaking my head, yeah, and verbally confirming, I have in fact heard this framework at play.
Tim Beyers: I will play that back to Tim to some degree and then he will point out the fine tuning of what I missed, and so what ends up happening, it's a little bit like a chat GPT interface. I'm like, I think this is what I heard. Then I get an answer back. Nope, that's not right. Let's try it, with this little extra thing. That ability, I think in investing and in life, generally, the ability to humbly ask a question of whether or not I heard what I heard. Does this make sense? If it doesn't, what am I missing? Then gradually I keep accumulating little bits of extra knowledge. It's not that I have deep expertise in this, Mary. It's that I have learned enough over time to be able to ask a better question than I used to be able to ask. That's it. It is not like you're giving me way too much credit when you say deep expertise here. That's not true.
Mary Long: I don't know. [laughs] But even asking great questions is a skill that's more difficult than maybe we often think. But I think it's fair to give you plenty of credit for being an expert. It sounds like if I'm hearing this right.
Tim Beyers: Nice. Well done. [laughs]
Mary Long: Your investing career, we can almost think of it as like three different cobblestone, so we've got this exposure, the enthusiasm of the stock market, stock picking class that you take in high school.
Tim Beyers: Yeah, a little bit went on.
Mary Long: Jump to the next cobblestone of Jeff Bezos is on the cover of Time, I'm buying Amazon stock, now I'm selling Amazon stock, and I'm resetting my knowledge base. That's cobblestone 2. Then Cobblestone 3 is, well, I've just spent two years really learning and just being a sponge and soaking up everything that I can on this topic and now I'm really in this. Whether it's from cobblestone 1 to cobblestone 3 or just looking at maybe your tenure at the Fool, how would you describe your investing philosophy as having changed?
Tim Beyers: I'm more conservative than I used to be in the sense that I spend more time with valuations than I used to. I spend a lot of time on unit economics. I'll come back to that because those are terms that we may need to define. But broadly, I'm more conservative, I like to be investing in tech because it gives me two things. I reduce my intellectual risk, so I've not deviated from investing in tech, and I don't invest in tech because it is of the moment. That's not why I invest in tech, that has never been why I invest in tech. The reason that I invest in tech is because I have low intellectual risk in that category. I have very high intellectual risk in banks, I have very low intellectual risk in tech, meaning that if I am going to aim my time and attention on a tech company and evaluate the business, I feel way more confident that I'm going to make accurate judgments of the business. Was if I tried to do that with a bank, I feel like the possibility, the variance of me being wrong, is just really high. My chances of being wrong are way, way higher, so that's one reason. Reduce intellectual risk.
The other is that Tech is such a broad category as to be meaningless. The economics of a database business is really different from the economics of a software as a service business. Yet, they all get lumped together, and because they all get lumped together, it has never not been true that mispricing in tech is rampant. It's rampant. That's always been true, and it's only gotten worse as the stock market has become more volatile, so that's an opportunity. The extreme pricing exists all across the tech markets. That has also always been true. But mispricing is rampant in this industry, so I think there's always going to be opportunities to fish in this pond. But my primary reason is because I've developed enough time in the tech industry and met with enough people who know more than I do that it has low intellectual risk for me, Mary, and that is what I prize the most. When I say I'm conservative, I like to know that my odds of being right are at least pretty good. If they're pretty good, it's because I am shopping in an area of the market where I feel relatively confident in my ability to assess.
Mary Long: You mentioned unit economics, why is that a standout, something that you like to pay attention to so much?
Tim Beyers: Because I very often I'm investing in companies that don't yet have profits. You can have a company that isn't yet profitable on a gross basis, but the unit level profit that they show is is good and getting better, and so what that tells you is as they get bigger, over time, those unit economics are going to show up and eventually deliver gross profit. It's going to show up as, this company is very profitable now. If on a unit basis, so let's say, and you can always break this down. I'm going to make this super simple here. Like a company has $300 worth of servers that it uses to deliver a product and the capacity of units it can deliver is 3,000. As of today, as it is, young in its life, that $300 they're only yet delivering, even though it has a capacity of 3,000, they're only delivering 100, and the revenue on each of those 100 is 10 bucks. Or even let's say it's a dollar on 100, so that's $100, so 100 units, $100, $300 servers this is not a company that's showing a lot of profits yet. Now, there's accounting rules here, like useful life of those servers, and there maybe, like an accounting profit, especially as those things age.
Forget all that for a second here. What I'm saying is, you have these servers, you're only doing 100 units now. But as you get up to 200 units, 300 units, 500 units, and you have that fixed cost, well, now you're getting somewhere. What you want to get a sense of is, what is it that a company can do in order to drive operating profits per unit? Am I seeing changes in the business that as the scale goes up, the operating margins get better. If that's true, that's unit economic power. That's happening, and so you're starting to see a company that can scale to profitable. It's going to deliver cash flows. I can feel confident about that. Direction really, really, really matters when you're dealing with companies that are selling a vision But that vision is still in a formative stage, and they have to deliver on the promise. You need to be able to measure whether or not they actually could deliver on that promise.
Mary Long: Is there a company that you think is capable of delivering on that promise right now and really stands out from this perspective?
Tim Beyers: I could tell you one that is delivering on that promise, they reported earnings recently were just Duolingo.
Mary Long: I knew you were going to say Duolingo. [laughs]
Tim Beyers: Did you know? How did you know that?
Mary Long: Because you've talked to me about the unit economics of Duolingo and how impressive it is before, and so I set for that a little bit.
Tim Beyers: One way you can look at it, so this is a unit economics argument for Duolingo is, so the last quarter they just reported, they had some outstanding numbers. But the quarter before that, for every dollar that they spent in sales and marketing, they were getting back about $6 in new revenue. So fast forward to the most recent quarter, the one they just reported, that ratio went up to for every $1 of sales and marketing, they got $21 in new revenue, so it was six to one, now it's 21 to one. That is incredible. Accordingly, their cash flow from operations ballooning, their profits, ballooning. In particular, if they trade for any premium whatsoever, you want to see those kinds of unit economic values that can get you to the cash flows you need to justify the price.
Mary Long: Tim Beyers, it's always a pleasure to talk to you. I feel like we started this off with the promise that we would learn more about you and talk less about companies and surprise we wound up talking about company.
Tim Beyers: That's the way I like it. We don't need to talk about me, we need to talk about members and what members want. I know you wanted to do that, but I am glad that we got it off of me and onto what members need.
Mary Long: There we go. I think it worked out pretty well. Thanks so much for the time, Tim. Again, always a pleasure to chat with you.
Tim Beyers: Thanks, Mary.
Mary Long: Members of any Motley Fool Service can watch this week in Tech with Tim Beyers and Tim White on Motley Fool Live every Friday from 10:00 AM to 11:00 AM Eastern, and anytime on the replay hub. To become a Motley Fool member, head to fool.com/signign. We'll also include a link in the show notes. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We'll see you tomorrow.
