In this podcast, Motley Fool senior analyst Maria Gallagher discusses:
- YouTube's announcement of a new revenue-sharing model for creators of short-form videos.
- How this strategy can help with retaining existing creators.
- Why she would really hate to see Lisa Su leave the corner office at AMD.
Motley Fool producer Ricky Mulvey and Motley Fool senior analyst Asit Sharma talk about how some people make investing harder than it needs to be and how to make your investing life a little easier.
Got questions about stocks? Drop an email to [email protected] or call the Motley Fool Money Hotline at 703-254-1445.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on September 21, 2022.
Chris Hill: YouTube is going after TikTok with one of the best weapons they have, financial incentives for video creators. Motley Fool money starts now. I'm Chris Hill joined by Motley Fool Senior Analyst Maria Gallagher. Thanks for being here.
Maria Gallagher: Thanks for having me.
Chris Hill: Let me say upfront, we are recording this late morning. This is a couple of hours before the Fed is going to make whatever announcement they make about interest rates. I fully expect it when they make that announcement, there will be some sort of reaction, possibly an overreaction on Wall Street. By the time folks are listening to this just now, we're recording this before that announcement. We're going to dip into the Fool mailbag. But let me start Maria with Alphabet, specifically YouTube, which announced this morning, it has a new revenue sharing model for creators of short-form videos. And for anyone who is wondering about the impact of TikTok on the business world, here is just the latest example of that where Alphabet is saying, OK, what can we do monetarily to get people off TikTok and creating TikTok like videos on our platform.
Maria Gallagher: I also think it can't be overstated the importance of creators to these type of ad revenue based platform. So to talk just a little bit about creators, they're about 50 million people that consider themselves to be influencers, creators online. Only about two million of them do it as their full-time job, but it's actually become an incredibly desired career. Being a YouTuber is one of the most popular answers when you ask kids what they want to be when they grow up. It's actually three times more popular than saying an astronaut, which was historically the most popular answer. So I just think that that's an incredibly interesting shift in the way advertising run that's happened in the last 15-ish, but really the last 5-10 years. Historically, YouTube has paid out it's creators in it's long form videos. But just like you said, they've announced that they're more directly competing with TikTok, that they're helping monetize on their short form videos, as well as something that I think is really important, is they're working with a new music library.
Since one of the major downsides of creating on YouTube is the licensing agreements of using popular music. That's going to be really important for creators as well. I will say that over the past three years, YouTube has paid creators over $50 billion in 2021, YouTube paid more than 15 billion to its creators, which was only about 200 million for TikTok. Just within a creator fund or the YouTube partnership program, it's more lucrative to be on YouTube but that's not including things like paid brand deals that a lot of influencers say make up a lot of their earnings. With a platform like TikTok that's shorter-form, more likely to go viral, that's a really good way for influencers to blow up within TikTok, and then they can monetize themselves really well on YouTube. But I think it's just like you're saying, it's so competitive for these businesses to try and retain those creators. YouTube is really saying TikTok is a threat to what has been a pretty clear dominance that YouTube has had over the past 15 years.
Chris Hill: It was 2019 when Alphabet started breaking out YouTube revenue in their quarterly earnings. I believe the most recent quarter was the slowest rate of revenue growth that they've seen. Clearly, this is an area they are focused on. When do you think we're going to get some evidence that this is working for them, not working for them, because it occurs to me listening to you that one of the ways that they may actually get a groundswell of support here is if they get some early success, then they can get those creators on YouTube shorts to start essentially being ambassadors for how they're making money.
Maria Gallagher: What I think is pretty fascinating about this too, is that it isn't mutually exclusive. If you follow a creator, they're probably going to post the same thing to multiple different platforms in a slight variation. But I think it's going to be hard to see how this competition works out because I don't think it'll say, and now no one's using TikTok anymore. It's just going to say, well now they're also making YouTube shorts. And so I think that's going to be pretty difficult for people to see. I think it's just YouTube trying to make sure not that many creators leave their platform. Trying to keep creators on and helping them monetize. I imagine 15 second videos are easier to make than 15 minute videos, but some people say that actually the shorter the video, the harder it is to make. I have never tried to be an influencer, so I can't comment on if that is true or not. But I think that it's trying to incentive people to not leave the platform, but also say, here's another way you can monetize your platform within YouTube.
Chris Hill: I hadn't thought of that before, but just the idea that this is from a creator standpoint. It is a retention strategy for YouTube to basically give people who have been doing longer form videos, giving them an additional option in terms of making money for themselves?
Maria Gallagher: Yeah, absolutely. It's interesting because I am a person who I really like influencers. I really like creators. I am an advertiser's dream because if I like someone, I'll probably buy whatever they're selling me. So it feels excessive if so many people they have, you see the first time that they tests out of joke, it'll be on Twitter and then they'll maybe make a TikTok about it, and then maybe they'll make a longer form bid about it on YouTube. It's interesting, I think we're seeing within the creator economy, the backstage look at how these things are made. With YouTube shorts, I think that's also going to be another tool of saying, OK, where in the life cycle of a comedian, where in the life cycle of this joke are they with YouTube shorts versus maybe a longer YouTube video that just like a sketch. I just think it's another interesting way to look at how this creator economy is evolving.
Chris Hill: What was the last thing you bought as a result of being influenced by someone on TikTok or YouTube?
Maria Gallagher: I bought vitamins that were really weird. This influencer I like swears by it. It's like a probiotic vitamin that made my stomach hurt.
Chris Hill: Okay. We'll move on to the mailbag, then, our email address is [email protected]. We got a question from Sophia in San Diego. Who writes, who is the CEO you would most hate to see leave the company that they're running? I know Craig Jelinek is 70 years old, but I am a happy Costco shareholder and really hope he doesn't retire anytime soon. Thank you for listening and for the question, Sophia. Great question. I'm reminded of Craig Jelinek got the job because longtime CEO, Jim Sinegal step down in the most unceremoniously way, which was they put out their quarterly earnings report and then at the bottom of that report was basically like, Jim Sinegal is stepping down and longtime lieutenant Craig Jelinek is taking over. Whenever Jelinek leaves, I'm expecting it'll be that it's not going to be what we've seen out of say, Starbucks and their CEO transition recently. But to Sophia's question, who's the CEO that you would really hate to see you leave the company?
Maria Gallagher: I think this is a tricky question because you want a CEO to create a company in which when they leave things are OK, so it's a tricky question, but I would say one of my favorite CEOs is probably Lisa Su at AMD. She came in in 2014 and really turned the company around. She decided the company would really go big on building tech for these high performance computing applications, and this set them up to power, Cloud computing, data centers, AI gaming, and with these types of companies, it's really in a 3-5 year lifecycle so you need a CEO who has really good foresight and so I think that that's actually pretty rare to have someone who can see the trends that far in advance and say this is what we're going to focus on because she said, listen, we're not going to focus on phones, sensors for Internet of things. We're going to focus on this other portion and so I really admire her and I think she would be hard to find someone who is as good as she is.
Chris Hill: You're right. Whoever is the next CEO of AMD has a very tough act to follow, but you're also right that, that really should be part of the job, just making sure that the transition to the next leader is as smooth as possible.
Maria Gallagher: Yeah, everyone talks about keyman rescue, you don't want to really have that so interwoven with the performance of your company because that's not a great long-term sustainable strategy.
Chris Hill: Keep the emails coming [email protected]. You can also call the Motley Fool Money hotline 703-254-1445. You can leave a question on the voice mail and you may end up hearing your voice on the show. Call us 703-254-1445. Maria Gallagher, always great talking to you. Thanks for being here.
Maria Gallagher: Thanks so much for having me.
Chris Hill: Unlike gymnastics or Olympic high diving, you don't get style points in investing, which means some investors might be making it too difficult on themselves. Ricky Mulvey has more.
Ricky Mulvey: Bear markets are already hard enough to deal with. It's easy to make these periods even more difficult on yourself. Joining us now to talk about how you can make your investing life a little easier is Motley Fool Senior Analysts, contributing learner, Asit Sharma. Asit good to see you.
Asit Sharma: Ricky, good to see you, man.
Ricky Mulvey: Actually, I just got back from Australia, which was a good time. I started thinking about this because on the flight back, people where all just weird stuff onto the plane and the guy sited behind me, this is a 14 hour flight from Sydney to LAX, was in a full suit and tie for the entire time. When we landed in Los Angeles, I looked back and not even the tie was loosened. I started thinking, you get style points, but that doesn't necessarily count for anything. Maybe the same is true in investing.
Asit Sharma: I think it is true investing also, Ricky. Now you and I love to flip things over, so we are going to spot this gentleman. This thought, hey, I'm a business person, I'm a suit. I don't feel comfortable if I'm not dressed in full business Regalia with my tie knotted, even if it's a 14 hour flight, I just wouldn't be comfortable wearing yoga pants.
Ricky Mulvey: I was taking him seriously the entire time.
Asit Sharma: Well, that's actually where I'm landing. I think he could have loosened his tie during the flight rather than get up and stretch and loosen it then and say, wow, what a flight.
Ricky Mulvey: Just to touch. I hope he's doing all right. But I was thinking, what are some of the ways that we just make life unnecessarily difficult on ourselves?
Asit Sharma: The first one's easy for me. It's time management. If I could manage my time better, I think my life would be easier. Knowing this though I don't spend a lot of time trying to get better at managing my time. Now speaking of time, Ricky, sometimes we don't stop to analyze how we can optimize a certain process that's become routinized in our lives. For me example, I had this lamp, the light wasn't right in my working environment, and I went weeks and weeks before I rearranged it. Anybody who's lived in a home with a skateboard or a misplace pair of dumbbells probably has experienced the same thing after awhile the aggravation level, will catch your attention or you'll get a little bit of an injury. [laughs] Then you finally want to make an optimization at that point. You could do it earlier.
Ricky Mulvey: It's called metacognition. It's thinking about how you're think. It's easy to go down some odd paths doing that. Speaking of making things more difficult in investing, I think there are a lot of ways that investors just make their lives more difficult. For the past few years, I look at email inboxes where investors often send questions. Before this, I worked on a call-in radio show. One of the thoughts that always came to my mind is reading these questions, it's like, why are you making this just so difficult on yourself? What are some of the ways you think investors are putting, let's say the weight in front of their toe?
Asit Sharma: First comes to mind something that you shared with me, which I totally agree with, it's when you're checking your brokerage account all the time. The other thing you had mentioned to me, trading on the news cycles. Trying to stand or sit in front of a big screen and watch CNBC and trade that news. That's really difficult. For me I guess when you put all the work on the back-end versus the front end, you're just making it difficult for yourself. By that I mean, we've all done this, I've done this in my career many a times. Let me be honest for once I've done this many times. You buy a stock, you're not really paying much attention. Your portfolio is doing well, the markets doing well, sounds like a good idea, you buy it without much thought. Then the market turns on you, suddenly the stock is down 50, 60, 70 percent and then you're doing a whole lot of work on the back-end. All of a sudden you want to know what does management think about this company's future? When we'll cash flow turn positive? What is their competitive position? Do they have a moat? All the things that might have been well applied in one hour or two hours on the front end, now you're spending weeks and months trying to figure out in many cases. That's making things difficult on yourself.
Ricky Mulvey: I think a lot of investors are going through that right now.
Asit Sharma: Yes, unfortunately.
Ricky Mulvey: What are some of the ways you can make investing easier on yourself? Some ways that you can take that rack of weights away from your foot so you don't stub your toe so much?
Asit Sharma: By the way, Ricky, the research backs me up on that phenomenon. If you look at urgent care nurses, their commentary and standup comedians, are well-documented. I think long-term holding something you and I have discussed diversification. These are bedrock principles, but they make so much sense when you've diversified your portfolio out to at least 25 positions and they go up to 40, 50, I've got basically 70 securities that I hold. You begin to become more adept at position sizing. Suddenly it makes sense to put 1 to 2 to 3 percent in any given position, and keep adding two positions that are rising in your conviction, business results are coming in well. That's a lot easier than, again, working backward where you put 60 percent of your available capital into one idea. Another which you've pointed out to me and I so much agree with this, is just focusing on business. When you're researching the stock, after you've bought the stock, keep focused on the business results because eventually, the stock price will catch up even if the market is this big weight, compressing all values, compressing all multiples. Eventually things normalize and so, the investor who spends time studying and undermstanding great businesses just has to buy those companies and hold onto them. They'll eventually be proven right.
Ricky Mulvey: Focusing on what is at the weighing machine instead of the voting machine.
Asit Sharma: Exactly.
Ricky Mulvey: Then I think I've also heard some Motley Fool Analysts give themselves behavioral rules for buying stocks and index funds. One thing that Jim Gillies mentioned a few weeks back, was that he buy stocks only on down days. Do you apply any similar rules for yourself?
Asit Sharma: I've got one which I use in good markets and bad markets, which is, I won't buy a stock until a weekend has crossed. If it's Monday, I have to wait till the next Monday to buy a stock. This is working for me because I love Saturday mornings, I love Sunday mornings. They're my leisure and creative times, so my mind floats and wanders, I think about the week that went past, I think about the future, I read some fiction, and I do house chores. In that frame of mind, I find that most receptive to make investing decisions. It takes away some of the angst in a down-market that I might be experiencing, or some of the FOMO in an upmarket that makes me want to just buy a stock before I've done my homework and rational thinking about it.
Here's a second one that I use in a market like the one we're in, which is just tough to deal with. I didn't mean to laugh so sarcastically earlier, when we were talking about the markets, I'm suffering too a bit here in my portfolio. But I give myself permission to sit out a few weeks if I need to. Sometimes we think that we as investors must be pretty active in the markets. Even if like myself, you're investing every paycheck, a little bit of the money that comes into your checking account. You could sit that out. I did that this spring. It must have been, four, five weeks where I didn't make any investments, even though I'm a dollar-cost averager by nature. That was good for me, so those couple of rules come to mind.
Ricky Mulvey: You mentioned active trading makes investing more difficult. I think that's why you see so many professional investors lose money. Morgan Housel on a recent blog post pointed out that it was 80 percent of them, and then that's compared to the S&P 500, and he pointed out two reasons. One of which is that professionals need other people's money to invest, and then number 2, entry barriers are low. The stat he pointed out that kind of shocked me was that there are more mutual funds in the United States than Starbucks locations, which maybe that shouldn't be shocking because it's easier to open a mutual fund than a Starbucks. But I still found that surprising. What is your takeaway from that 80 percent number and what do you think that means for individual investors who were making this game even more difficult?
Asit Sharma: Charley Ellis is this famed investment consultant to big institutions, endowment funds, pension plans, etc. These guys manage hundreds of billions of dollars collectively. He's expressed some similar sentiments in an article called The Loser's Game, which he later made into a book. The ideas you've got all these hoards of smart, well-educated managers being turned out every year, and they've got a wealth of information right at their fingertips; it makes it harder for all but a few to beat each other at the same came. He also mentions the high costs that are associated with active funds versus passive funds. Sure, they may show a low fee, like a one percent fee, but they've got operational costs that create a hurdle for their investment returns. Now here's the interesting thing Ricky, Charley Ellis wrote this article in 1975. These insights he gave is about 50 years ago, coming on 50 years ago. This has been apparent for some time and it's going to be apparent, I think even going forward. Active investing is a hard game. That's why if you look at our investment principles, Motley Fool's investment principles, they mirror and borrow from passive ETF style hold for the long-term investing.
Ricky Mulvey: We do like the individual companies and as we close out, investing isn't just difficult for yourself, it's difficult for the companies you own. One way, that the investing life of the companies you own can be a little bit easier is by having a great balance sheet. When you think about a company that's making its life easier on itself right now, who do you think of?
Asit Sharma: First, I want to hear from you because you gave a great example when we were talking about this episode and then I'll give mine.
Ricky Mulvey: I'm not the analyst here, my job is supposed to be easy Asit.
Asit Sharma: Let me talk about your example then. Go ahead.
Ricky Mulvey: I was thinking about The Trade Desk, going into a tough advertising market environment. But they have a fortress like balance sheet. We were talking about working capital earlier and I think that makes it easier for them to weather this storm versus some of the other high-flying tech companies we often talk about.
Asit Sharma: I agree. I mean, spot-on, they've got $1.5 billion of net working capital on their books, no long-term debt. What if they have a couple of quarters where all kinds of companies are pulling back their advertising budgets and they don't do well. That hasn't been the case, actually, they've been thriving. But you'd sleep well at night as a shareholder. The company that I wanted to talk about has a little bit weaker balance sheet with some good reasons than it's had in previous years. But it has monster free cash flow and that's Adobe. Now I know a lot of you investors were taken aback by Adobe's, offer to buy a company called Figma for about 50 times its annualized recurring revenue. It's a $20 billion deal, half cash, half stock. The thing that occurred to me about Adobe over the weekend, Ricky, is they are going to generate $50 billion prof in free cash flow over the next five years. Even if they totally whiff on this deal, they've made it much easier on themselves in a very uncertain macroeconomic environment to pull up a smaller competitor. If they have to ride off some goodwill, it's not going to be a huge deal to them. Monster free cash flow, strong balance sheets, they make it easier on these companies in times of stress and dress.
Ricky Mulvey: Asit Sharma, always pleasure, thank you for your time.
Asit Sharma: Thank you so much Ricky. This is so much fun.
Chris Hill: 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 Chris Hill thanks for listening. We'll see you tomorrow.
