Watch CNBC's Full Interview With Charles Schwab

Well the investing world rocked last week when Charles Schwab announced.

The firm would go to zero Commission's on equities and ETFs.

What's next in the race for new clients and new products Bob Pisani is on the floor with an investing legend mr. Charles Schwab himself.

He has a new book as well Bob take it away thanks very much Scotty investing.

Legend Charles Schwab has written several bestsellers prior to this his latest book invested.

I read every word of it it's terrific it's a personal memoir of the company's histories.

It's just been released today let's talk to Chuck as the ad used to say he joins us down on the NYSC floor that was my favorite thank you BoB.

When was that 2005 it was that help put your face out there as the face of the firm it self did that give you a competitive advantage.

Well you said so I think it did but we'll never know but I think people were familiar with me and face they knew.

We would be honest people at least I looked honest at the time and so we delivered. 

I got to ask you about the zero Commission thing you went to last week on equities and ETFs it really rocks.

The world we you moved all of your competitors you moved your your own stock what was behind that decision well you know.

We joined that New York exchange in 1981 many years ago.

So prices then when we first came on board we were about half price we kept coming down every year to now was sort of the final solution for investors.

We have a great deal from business you can buy and sell stock for no Commission that's what I really wanted to do.

I thought just like other companies we make our money on the other relationship you might want advice you might want to have a fixed income or things like that we'll make a little bit of money.

There but Commission's on stocks.

Now are free yeah so where does this end so you obviously commissions are important part of your revenue but you have a huge banking division.

There's arguably much more important revenue wise and you've got wealth management what happens next.

So you do you go into your high your interest rates and say okay!

We're going to offer you a little higher interest rate on the bank how do you keep well it was n well would you what we try to do is offer things.

Customers really want and they definitely want lower prices.

So we've been a company that's been involved that by using technology for many many years and pointed the benefits.


Watch CNBC's Full Interview With Charles Schwab


Efficiency of technology we have one of the lowest cost company in the financial service bill.

So therefore by being very thoughtful about how we spend our money we can deliver great value on to our client this aggressive move on your part is sparking.

A lot of talk about more consolidation in the business probably will happen is there going to be three or four competitors in to bu Ameritrade Robin Hood.

Where does this well it could be and we don't know how well that will unfold but that's very logical conclusion that that will occur in swab.

A potential buyer of anyone out there well certainly.

At the right valuations we would do it but we are really strong and very independent.

The way we do things and so if it happens that's appropriate for our shareholders.

We will do it let me move on to the IPO market you've seen what's been going on we had a very strong first half of the year.

We've had a little bit of trouble recently we work had to withdraw over valuation issues and other things one of the most interesting parts of your book was your IPO in 1980 most people don't know this you withdrew.

The IPO when you couldn't get the valuation you were looking for right you had to wait another seven years you did went public in 1987 very successfully but you pulled it initially.

Just like we were we did did you have any advice for we work about what they should be thinking.

About or anybody know what he came to view for that advisement I live right in the middle of where all this stuff is occurring in San Francisco.

So I see all these three boats going on in terms of valuations and some they're so unrealistic because the companies are still losing lots of money when we went public we were making money.

So it's a different atmosphere today with a lot of losers and I don't know a lot of weworks or whether some of the other companies uber will though well they make money I don't know is it fair to be for them to be pushing back for the investor for the people the CME viewers.

Who are going to be buying these IPOs is it fair for them to push back on the IPOs I think overvalue.

I would never private space.

I would never buy a company like that that has huge losses and no snow scene and no sight ahead of you how are you gonna make money.

I mean you want to you want to buy companies.

I have great values and that means number one they have to be a growing in revenue.

They have to be making money and that pretty simple formula yeah and while these companies just don't make money.

We talk a lot about ETFs here Schwab has muscled into the ETF space in the last five years you're now number five from no when you well.

I don't know we must for them we just offer a great value we had reduced the OE ARS down to something like near zero not quite zero and people are attractive.

How do you feel about that whole active versus passive debate.

A lot of people are complaining too much money is in the passive space but you've been a big advocate of that for years is there too much money.

There I don't think so I don't think it's at all I think there's always price discovery going on all over the place where this venture capitalist or wall street here in the you know Wall Street right.

I am right now in New York exchange a price discoveries going on all the time and analysis going on there will always be some people who like myself.

When I first began business will try to evaluate companies make assessments and judge it and see if the price is right so passive investing.

It's clearly a path for most people it's really easy great diversification and low cost and you've been a big advocate that you started that Schwab 1000 fun the passive fun 1991 oh you were way ahead of that Josh Browns.

A question over in Englewood Cliffs Josh to go ahead hi mr. Schwab I'm a big fan of yours and and also a client on the custody side and I appreciate everything you've done to lower.

The costs for investing I wanted to ask you about one of the things people mention when we talk about Commission free trading that to some extent.

It's being subsidized by cash rates for the end clients that maybe are not optimal or maybe are lower than regular market rates.

If investors really just end up paying the same toll booth a different sort of toll what would be your response to that how should we think about that when we swab and other online brokerage providers obviously.

We as a company do make buddy and different we're very large companies so we have many different kinds of services to offer and some we charge on for sure.

Now in terms of interest rates if you want to the highest maximum rate in terms of and liquidity complete you buy a money market fund or you buy a fund that is which we have some there nearly 2 percent in terms of interest rate right money market fund.

If you want to be in our bank FDIC insurance all those kinds of things that go along free checking free ATM cards all those things it's a very valuable service.

So that comes sometimes a little bit lower rate than you might find it in a money market fund so it's up to you to make that choice.

The average investor though I don't one of the great parts your book talking about what it was like in the 70s.

Where he average investor to buy and sell a stock what a better deal it is today even nothing back then to buy a hundred shares of a twenty dollar stock.

I might have questioned fifty sixty dollars to me four percent ten I was just looking at that yesterday just five years ago you would be paying ten times more in commissions and all the costs that go into buying.

Then it is a day it's just unbelievable the improvement and you led that revolution well.

We in the discount broker took us about 15 or 20 years to do that didn't happen overnight Joe Terranova has got a question he's in Inglewood.

As well but hey Joe good afternoon mr. Schwab thanks for joining us today.

I want to go back to the active passive debate how much of this debate do you think really is just ultimately about cost active management it really.

The need to lower fees and do you think the passive argument has been embolden by this continued bull market higher that never seems to correct it self.

Well I think it has to do with the robustness of the American stock market we are such a great place for capitalism and success of free enterprise.

I think every company that trades is always thinking about growth new innovation new service new whatever might.

So companies on average do grow every year and so an index fund that passive fund you can participate.

At very low cost and it's easy to do if you have the time to spend on analyzing companies which takes.

A lot of time they want to pay for the service which would be active managed funds me for the average guy I think passive funds we started.

A fund in 1991 Schwab went out a ver about nine point nine percent compounded growth rate compounded for those all those years Society.

Won so it's whatever you want now there's a great chapter in your book where you talk about the financial crisis in 2008 you talk about your concerns about housing in 2007 too much credit sloshing around is there anything that raises your radar right now any bubbles any suspicions is there anything that makes you nervous about the markets based on your fifty years of experience.

It doesn't seem like there's excesses of any portion of the economy to the extent you're talking about I think some of the IPOs.

We've seen it's a very large valuations based upon no earnings that's sort of a an obvious place to look.

So you can avoid buying into those things wait until they start making it but overall Inc the company the country is very diversified east to west coast central part of America.

I think we have great valuations one of the things that I thought was most interesting was your discussion about crashes and how people mentally deal with crashes.

The behavioral thing that happens to humans when things get really bad.

We feel bad and will you respond sort of some people panic and that's the kind of thing you have to avoid in your gusset.

If you're gonna be a successful investor.

You've got to be above those kinds of emotions one of my favorite quotes in the book panic is not a strategy stick with your investment plan and don't let emotions get the better of you must have seen a lot of panicked clients.

The 87 crash the 2000 DICOM bus the 2008 crash and before and have white you know we talk about this all the time why people behave this way we talk about rational investing.

We talk about buy low and sell high and panics people don't do that they don't buy low and sell high they buy high and sell low why did they do that and what can you do to well we do to stop people they're their net worth as such my portfolios down.

I've lost 50% of my money 1/3 of my money whatever I don't wanna lose any more so that is what happens to people.

It's about their money and boy with you come to investing.

It's all about growth it's about letting things grow over a period of time and you have to have confidence.

The American economy you don't hit pelvis you shouldn't invest you should put all your money in bank.

Then forget about see my foot wrong thing to do though it's hard to get people to do that one of the most depressing things in my career.

I'm going on my thirty years at CNBC the first quarter of 2009.

We bottomed we didn't know.

It but we actually saw mutual fund withdrawals accelerate by then the market was already down 50 percent unless you believe.

The US economy was going to be zero.

My thought was why would anyone pull out.

Now and yet the losses X the withdrawals accelerated.

At that point bomb would that's when I became a behavioural investor I said your head what the what would happen what is going on London's.

At that moment time you have all the newspapers are negative.

If all the networks are negative if every pontificate er. is negative about the economy and all of a sudden.

The light the Sun comes up to the next day and all of a sudden.

The market turns people have all exhausted on selling and then a few smart people start buying and then all of a sudden.

We start another bull market did you have anything did you get a chance to ever pick up.

The phone and talk to individual clients.

When it's kind of crazy well we should have a mutation with our clients through those time periods not all we're perfect timing.

When we're down 40% we'd sent out of work to do not sell this is not a time to panic hang on six months and now you'll be much better off that was a kind of view and it turned out that way but it's happened not to me just one time.

It's happened to me every panic that goes way back to my start the business in the late late 50s and early 60s.

I want to get your quick thoughts on the retirement crisis.

I call it a crisis I mean the markets are up so we're doing a little better but then the amount of money that the average.

I'm 63 average baby boomer has saved for retirement is not adequate.

if you think of your personal savings it's adequate.

I don't know what we can do about that and plus the fact they're gonna live longer than ever.

Would have thought so the only way you can do that right.

Now is probably help your kids get started get them started get an investment account make sure they do their IRA account.

Their 401k account all those things are free money and in tax exempt you've got to start someplace.

I think education course is the number one way to achieve that so our schools don't do it our high schools don't do it our college don't do it.

I'm actually funding a course at Stanford on introduction to investment decisions.

So this will be addressed to people are 20 21 years of age but I wish more schools had these courses for kids.

Do you think we should have every high school should have a course on basics of finance what a stock is would a bond in what the Federal Reserve.

We are a sophisticated free enterprise country.

We should have an understanding of what that really means in school no back of 2008 you were chaired.

The President's Council on financial literacy were you not making these recommendations back.

Then we did we did exactly that but it was a huge thing with 300 million people in the country.

People would rather watch maybe footballs and learn about financial services stuff one of the things that really came through when your book.

It was the struggles that you had and your perseverance.

I think that's the thing word I would associate most with you the struggle you had the beginning because Wall Street hated you discount brokerage.

We're never done work while they were rooting for you to fail.

The difficulties raising capital then the 1987 crash then the decision to sell yourself.

To Bank of America and extricate yourself from that and eventually go public in 87 all the way kept saying oh my god he's not going to make it and at one crisis after another one cost-cutting crisis firing your friends and intimates who you've been with for years.

How painful that was for you and yet you persevered well.

It's a great story about an entrepreneur.

I had myself I have people out surrounding me who wanted to be part of this entrepreneurial trip yeah we worked hard to really make sure that our clients.

Get a great value bring the cost down of investing get more people to invest and that's sort of the pursuit.

We've always been on yeah I guess we'll just that a person there's a little piece at the end of the book about personal observations life lessons.

Do you tell people who are dealing with a lot of setbacks like that who are who are how you deal with with burnout for example and because I saw that with some of your colleagues.

That were just exhausted this your effort to keep the organization going is there some thing motivating you can say to them other than knowing.

What I think it's just a matter of getting enough energy to make sure that you have friendships other people that you're not always dripping.

Your own sad story that you're talking with other people of common mind.

So forth and you get on energy from being friends with other people I think depression is a terrible.

Thing for lots of people they get so into themselves but make sure you keep a face out with your friends.

I want to ask you a question about why Wall Street is so bad.

At predictions it's amazing to me 30 years of not even watching analyst but the Federal Reserve predict GDP even one year ahead.

It's amazing how inaccurate it's amazing how bad everyone is at predicting.

The future you look at it you want to say you've got to be kidding me why should we listen to Angie's body at this point well it's human experience is what we do as humans and collectively.

As humans as a human race and so we hope for different things and so many times.

It doesn't come on the right moment you have to have patience yeah and that's what investment about it's God I have patient.

If you don't have patience you shouldn't invest shuts her off hunker down in your own little bowl at some place yeah.

I think that's why we the way to look at it before.

I let you go biases I have mentioned we all became behavioral economist after the financial crisis we all said this is not how the world this may be the world is supposed to buy low and sell high.

It doesn't let's look at how people really think and how they react in a panic any advice for dealing with people's own biases how people can recognize that and educate them selves better investors BoB.

I just think it's a matter of Education understanding how humans react to things.

How there's many stories and many factual things that have been written by psychiatrists.

How people react to different news thing they all be generally on a panic but then say oh my god I'm panicking you ever recognized.

When I'm panicking you do people they think about it they'll recognize it and then do just the opposite do not panic.

I think that's right the down markings are always so much more critical in terms.

They always go straight down basically and that's what really creates.

The penny markets on they go up go up chug up take much slower to go up much slower that scale of uncertainty.

Right I'm gonna end with my favorite quote from the book audiences don't remember information.

They remember the man now that was said to Charles by a fellow you hired back and oh I know many years ago many years ago to advise you on television commercials audiences.

Don't remember information they remember the man and we certainly remember Charles Schwab thanks so much for coming down.

It's been a wonderful following your career all these 30 years at CNBC.

I've enjoyed it very measured and continued successes terrific book folks.


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