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tv   The David Rubenstein Show Peer to Peer Conversations  PBS  February 6, 2021 6:00pm-6:31pm PST

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♪ announcer: support for the pbs presentation of this program was provided by general motors. woman: the world is ever-changing. what hasn't really changed is the way we move around it. but that way is giving way to a whole generation of people who will charge their cars just like their phones and who will judge vehicles not by the rev of an engine, but by the hum of change. the start button to an all-electric future has been pushed. ♪ david rubinstein: so when did the brilliant idea come to you to set up a brokerage firm? charles schwab: brokerage was built upon how well companies could make money, and not how customers really want to do business.
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david: your ads, in your company, for many, many years, have featured your face. charles: my director of our advertising said, "why don't we use your picture sometime?" i said, "are you kidding me? we tried one. the results were up by tenfold. david: do you have any stock tips for me? i could go for a couple stock tips. do you have any good ideas of--i could do with my money in the stock market? charles: how about an index fund? woman: would you fix your tie, please? david: well, people wouldn't recognize me if my tie was fixed, but ok. [woman chuckles] woman: then leave it. david: just leave it this way. all right. i don't consider myself a journalist, and nobody else would consider myself a journalist. i began to take on the life of being an interviewer, even though i have a day job of running a private equity firm. how do you define leadership? what is it that makes somebody tick? we're here today
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with chuck schwab, who's one of the best-known figures in the american business world, certainly has been so over the last several decades because of his ubiquitous face and his ads, but also because of the great company he's built, which is one of the leading financial service companies in the united states. he's now just written a book called "invested" by charles schwab, and we're going to talk about that and his life, which is quite incredible, and let me start by asking you about something you made news with just recently. your company announced that you're not really just going to do discount brokerage, you're going to give away brokerage for free; in other words, if i want to buy some stock, i call up schwab, i have an account, and i trade for free. how do you make money if i'm trading for free? charles: well, david, first, thanks for having me on your show. i've had thepportunity to know you for a while, so i feel very comfortable being here, letting you know all of my secrets. david: all right, well, tell me the secret of how you me money when you're not charging anything. charles: heh heh heh! well, a long time ago, we started taking commissions down,
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and that's how we started, is with lower prices along the way. then, finally, we got down to $4.95. i said, "we're so close to zero, let's go there." and i always had a-- somewhat of a passion for what the success of google has been. they made search free, and they do very well by offering free search. david: right. charles: similar, in our case, we think we will do very well offering our services free for transactions, and that's the commodity part of the business. the rest of us, we give people, if you need help and advice on different kinds of things-- managed accounts, banking, all those kind of things-- but the fundamental service we want to provide is free. david: ok, so i shouldn't worry about chuck schwab and not making money because you're giving -- charles: you should not worry about it. david: ok. charles: we actually are giving up 4% of our revenue in that decision. david: ok, so for those who don't really follow this, you started as a discount broker where you were givg
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lower commissions than the standard rates were before. today, you've become a conglomerate, in effect, in the financial service world. you have about $3.7 trillion of assets under management, so you make your money on other financial services, is that correct? charles: correct, but, you know, one of the things, i-- we are a conglomerate, but we're really not in the original sense. we only focus on what can we do for individual investors and advisors who have individual investors? david: so when you started doing this more than 40-some years ago, did you ever envision that you would be in more than the discount brokerage business? did you say, "i'm going to build a giant conglomerate" or not? charles: i did not, david. i mean, certainly, we had a very limited view of where we were at the time, but frankly, we thought the original business only had a-- would help maybe 10% or 15% of the population, people who did their own research and only wanted to have a simple transaction. as we found out, and want--as we wanted to grow, also, that
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there are many, many people who wanted help and advice along the way, so we developed lots of programs around helping people get better information about investing, diversification, index funds-- you name it, we're in it-- and so we give people lots and lots of choices now. david: so let me ask you about something that some people say makes you so well-known. it's that your ads in your company for many, many years have featured your face. charles: i started charles schwab and company from the investor's point of view. i invite you to find out more about schwab today. david: now, was that something you decided you wanted to do? charles: david, it started out-- obviously, our company started with a shoestring. we didn't have much money, and i had a tough time raising money 'cause wall street certainly didn't want to help me develop competition for them. so, as a consequence, i-- our ads were really teeny when we first started the business then, in 1975. it would be one column by three inches:
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"come and save 75% on your"-- so people kept coming into our company, and as we grew over the next couple of years, we had some profitability along the way, we were growing very nicely. once, we had a nice article written in "the san francisco examiner" about us. they used a picture of me, leaning over, as you remember, the old bunker ramo machines. david: right. charles: and there i was, and my director of our advertising said, "why don't we use your picture sometime? it'll show there's real people here." i said, "are you kidding me? what's my mother going to say? "what's my father going to say? what's my wife going to say? and my friends: 'you some kind of egomaniac?'" and i said-- finally convinced me after some conversation, he said, "just try one." we tried one. the results were up by tenfold because i think people thought, "there's a real person behind "this business, "and i can identify him, i can "certainly look for him in a post office, "so he's up on the wall there, i don't want to do business with him."
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so they--i think that helped and so, anyway, my friends got over it. david: but when you go walk downtown in san francisco or anywhere in the country, but certainly in san francisco, can you walk without having people say, "there's chuck schwab" and come up and ask you for some stock advice or something? charles: yes, well, it happens on occasion, which--i'm always honored to have that happen, but for the most part, people don't really recognize me in some sense. maybe i part my hair differently. david: so, when you were starting the company in the early days, if somebody called up and said, "i want to buy a hundred shares of ibm," you had a broker, he or she would write down a hundred shares of ibm, they then do something, they go to the stock exchange-- charles: we teletype it to the exchange at that time. david: ok, teletype it. charles: everything's written, everything's then teletyped, et cetera, to the central place in new york, execution reversal, they call the client back: "you bought a hundred shares of ibm at $50 a share." and, but, of course, very early on, we were very early adopters of a lot of technology
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to make ourselves more efficient. we just had to do that, and fortunately, i was close to silicon valley. many of my friends were people in the valley itself, and i--as an early adopter, and so we were one of the very first ones to sort of adopt internet in 1995, i think it was, and that was--it made us even more efficient. david: and you were always using technology, and then you were spending a lot of money on technology, which probably hurt your earnings a bit, but you thought, in the end, it'd be better to do that. charles: absolutely. it was the only way we could really do what i had in mind. the vision of the company would be as fast a transaction as we could. that's what customers really wanted. david: now, one of the ways you got customers from all over the country, you had something in your mind to do branch offices. why did you want to have branch offices? charles: david, what we found out early on, very early on, that about-- at that time, about 50% or 60% of our custors wanted to come into a branch and make sure that real people there were behind the counter, that they could see that.
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david: so you had better technology, perhaps. you spent more money on technology than others. you had your face, which everybody got to like, and you also had the branch offices, but there's one other thing that really made your company grow, from reading your book, it seems to me, is that you decided to do more than discount brokerage. you came up initially with an idea of, in effect, having people buy mutual funds through your platform. charles: yeah, that was a big innovation. david: can you explain how that works? charles: when i first started the business, mutual funds were sold by salesmen, obviously. got a big commission for doing it. up to 9% of the money invested went to commissions, and the salesmen got half of that, we'll say. i thought no-load funds with no commission was the best way for an investor to go about investing, which i used some of the early-- myself, personally-- through my ira account. i said, "this is crazy. "why can't i offer this service to everybody, a no-load kind of transaction thing?"
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so we went to the no-load companies, they were all small: "so give us a little piece of your management fee, "and we'll offer your fund for free to our whole network of schwab clients," and clients loved it. david: so you were the ceo for--from the beginning, and then eventually, you had a co-ceo. charles: right. david: and then the co-ceo had a heart problem, and he had to step back, and then you brought somebody else in, but you, at one point, kicked yourself upstairs a little bit, made yourself chairman. charles: i did, i did. david: and then somebody else was running the company, and then it didn't work out, so then you came back in for three years to run it again. was that something you really wanted to do? charles: 2004, i came back in. i wasn't sure i wanted to, but obviously, i loved the company so much, came back in in 2008. i retired again as ceo. i had walt bettinger take over, and done a fantastic job for the last 10 or 12 years. david: right. charles: and, uh, so-- but i'm always sort of hanging around
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as the compass of the company. david: ok. charles: i keep pushing the people, "we're going this way. it's north." david: so one of the causes you have is something that i'd like to talk about. you've been very open about it, unlike many people that have this problem. it's called dyslexia. charles: right. david: and for those who aren't familiar with it, it basically means it's difficult for you to read in the conventional way that the average person can read. charles: right. david: but the amazing part, in your book, as you describe it, that you had it for much of your life, and you didn't know you actually had it. charles: right. david: can you explain that? charles: our youngest son was about seven or eight. we had him diagnosed 'cause he had, as it turned out, all the similar and identical issues i had as a young student, all the way through school, and he was now just only seven, but he had it all the way through the rest of his career. and it was a really aha moment for me to understand, yes, we-- he got it through, obviously, dna, and as a consequence, i got into it--we both got into it, my wife and i--and we started an agency to help other parents
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who had identified kids with this issue. turns out one in seven people have some related issue around dyslexia, some learning difference. david: so when you are young, and you are dyslexic, and there's no term for it yet, or at least you weren't diagnosed as that, did you just think yoweren't that smart, or do your parents think, "well, he's not that good a student"? and how did you actually get through school? charles: early o i read a lot of comic books. i read classic comic books. they had the picture and a few words, but i got all the ories, whether it was "moby dick" or "tale of two cities." i was a wonderful student in the classics, but i got it through comic books. david: but if you're dyslexic, or somebody is dyslexic, does one compensate by hearing better, observing better, or being very good in math, as you are? charles: i think it's a phonological issue, fundamentally, is what it is. it's conversion of code, code to sound, and then to meaning, and then the reverse is true for writing. and because of that defect in our brain,
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we are slow readers. now, there are various ways to do that, to overcome that. you have books on tape. didn't have them when i was a kid, but today they're prevalent all over. every book's on tape. classic-- books, textbooks are on tape and so forth, and those really do help, and then we have other people who are smart around you sort of help you. one of the things i used in college, i used my friend's notes. i could-- i couldn't take notes. i couldn't listen to the teacher and take notes at the same time. my notes were incredibly illiterate. david:ou were not a great student, i guess, because of dyslexia in high school, but you've said in your book that maybe you got into stanford because you were a pretty googolfer. charles: i am a good golfer. i don't think it makes the, uh, academics too happy that i got into stanford anyhow, but the fact was the coach was looking for some talent in the golf area.
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david: did you play golf at stanford? charles: i did play golf at stanford, only as a freshman, only for a period of time. i almost flunked out was what happened because i was not prepared for college at that moment. david: you graduated from stanford, you went to stanford business school. charles: mm-hmm. david: and you did pretty well in stanford business school. charles: mm-hmm, i did. david: so when you graduated from stanford business school, did you say, "i'm going "to go join a private equity firm or a hedge fund" or what did you do? charles: no, i always wanted to do research. as a kid, i wanted to find out, how could i become successful? that was important to me 'cause i--we came through the depression years, my parents did, and i wanted to sort of make money and get the resources to have choices in my life, so i moved off, found financial service was the way to go, so at age 13 or 14, i began to think about this thing, stock market, then i went to stanford economics, business school, all financial, investment management, all of that in my early career, and then i worked after
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and during business school for a small advisory company. i was a research analyst, portfolio manager, and i had the responsibility and the introduction to many brokers, would come and sell us their stories, so i got to know the fundamentals, what--how wall street functioned. it's all by sales commissions, and some were bad incentives, so i said, when the time came, "how could i make "a better industry out of the commission business by basically taking out the consideration?" david: all right, so you're doing investment reports, but then, eventually, you realize, i guess, that you're not going to get that wealthy writing investment reports. so when did the brilliant idea come to you to set up a brokerage firm and a discount brokerage firm? charles: well, it started, really, in the early seventies. i saw how--how difficult this business was. it was built upon--brokerage was built upon how well companies could make money, the brokerage companies, and not how customers really wanted to do business.
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so, as it became in the conversation in '73 and '74, congress, the sec all thought that the commission system was really not a particularly good one, particularly a fixed-rate thing, and so, the beginnings of the end of that started then in '74. we had the test period, and then '75, boom, we went to mayday. david: all right, so you had the idea that--people were then allowed to have a discount to broker before. if you were--let's say i wanted to buy stock, you had to pay a fixed commission, everybody paid the same amount. charles: yeah. david: in 1975, it was changed, deregulated, but you weren't the only person that... charles: no. david: came up with the idea of doing discounts. charles: no, we weren't. david: what enabled you to become the biggest in this business? what did you do that the others didn't do? charles: well, i'm not really sure. i think-- i would have to say our customer service was fantastic. i think because we were on the west coast, then we talk about--there was a paper system then. there was no computers then, but we had the--we closed--
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in san francisco, the markets closed, like, 1:00 in the afternoon. we had all afternoon to clean up our paperwork, as such, and be ready for business the next morning at 6:30, and so we had longer time period to do-- to do our clean-up work and have better customer service. david: so when you wanted to start the company, did you just go down to silicon valley and say to a venture firm, "hey, give me some money, i got a start-up idea"? charles: no, there was nothing like that available to us. i would have to go to friends for a little bit of money. i had some people in ypo who thought my business was great. and that, of course, eventually led to our deal with the b of a. i went to them to borrow money. they liked our business model so much at the time, they decided to try to buy our company, and i came from nothing, as i had mentioned, and so they enticed me to sell the company to b of a. i thought that was a great thing and would enhance our reputation as a discount broker
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that we were associated with the b of a, the largest bank of the time, and that was ts of that before i bought the company back. david: well, it sounds like a great idea at the time. b of a, which is the epitome of the establishment, is buying this little... charles: yeah. david: kind of renegade company which is not the establishment. you not only sell it for $52 million, which strikes you-- charles: a lot of money. david: then as a lot of money. and also, you got on the board of bank of america at, i think, the age of what, 43? charles: something like that. david: you were the youngest person on the board. charles: and one of the largest shareholders. david: the largest individual shareholder, the youngest person on the board, the establishment is there, and you don't regard yourself as the establishment, so what can go wrong with that? it sounds great. what happened? charles: well, it sounded great then, but then the bank fell on some bad times. we couldn't continue to do our progression of new services. for instance, one case, we couldn't even develop our own money market funds 'cause the bank had to get permission because they were in trouble by their operational issues and loan-loss issues that we couldn't get
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the federal reserve to approve us to do our own money market funds. david: ok. charles: and i thought it was time that we should get out of the company. david: well, you had one advantage in buying it back, i think. you had the right to your picture. charles: heh! i did. i had a name and likeness that went with me, and they could sell the companies. we finally came to terms. david: who was the clever lawyer that told you to keep your name separate? charles: i don't know. i thank him every day, let me tell you. david: all right, so you bought it back for, let's say, $250 million to $300 million, more or less. and so how did you feel? you bought it--you sold it for $52 million, but you then had to put up $250 million to $300 million to buy it back and you had to, you know, put up a lot of your own money to do that. charles: well, david, back then, the valuation--when i sold the company to b of a, i sold it for about three times revenue. when i bought it back, i bought it for threeimes revenue, so it was about the same; we had just grown that much in that time period, so it was a fair deal for them when i sold and a fair deal when they sold to me.
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david: but you did what's called a leveraged buyout... charles: i did. david: and you were advid by one of the leaders of the leverage buyout industry then and now, george roberts from kkr... charles: right, right. david: and so you had a lot of leverage. in those days, uh, leverage was higher than it is today, so you had a lot of your net worth tied up there. you also h a lot of your debt ahead of you. charles: i had all my net worth and then some. david: so you decided to try to deleverage pretty quickly, and in the same year you bought it back, you decided to... charles: go public. david: essentially go public. charles: i did. david: that was pretty courageous. did anybody tell you that was not a good idea? charles: uh, a lot of people. i said i needed to deleverage as quickly as i possibly could, and fortunately we did because, shortly after going public, we had the crash of '87, and that was another complication. david: did that affect your business at all? charles: of course it did. our stock dropped from-- 15 was the ipo price, right on down to 6. david: so your net worth went down a little. charles: ha ha ha! yeah, more than half. uh, that didn't bother me. i mean, i--
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'cause we still had the company, we still had the opportunity, and having been a student of stock market cycles, i knew we would eventually return to more normal times. david: so your company now has a market value that is staggering compared to what it once was. i think your market value's about $56 billion... charles: something in that neighborhood. david: all right, $56 billion, and you are the biggest single individual shareholder still. charles: yes. david: so you have a net worth yourself that's fairly high. what is your view on the wealth tax? do you think that a wealth tax is going to make society better or not, or how do you look at it, as somebody, like me that is subject to criticism for not supporting such a tax? charles: well, i think it's sort of wrong-directed, in many ways. i think we, as a society-- and you probably don't talk about it as much, and i don't either, about our philanthropy-- and i feel that's an obligation of all of us. i came from, really, nothing and was-- had plenty of incentive to create what we've created. and of course, my wife and i have spent a lot of time
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over the last 20 years giving back money to different causes that we really think need improvement. whether it's education or the art world or alzheimer's issues, you name it, we are probably supporting that. david: so you're a pretty famous face and obviously a famous person, so, in california, when you're famous, sometimes you say, "well, i should run for governor, senator, president." did you ever think of running for anything? charles: i was suggested to be appointed secretary of treasury one time under the bush administration. i thought, "i just can't do it. i can't put everything in some trust and so forth." and i really--i felt that this was my purpose in life, developing a company like this. we have benefited so many people, so politics wasn't really my--maybe if i was king. i like to make--heh! i guess i like to make the things happen quickly. david: so today, the way you view--you're contributing to the country other than paying taxes, building up the company,
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do you spend any time advising government officials or do you do other things relating to government? charles: well, i am obviously very actively involved in politics. i think every individual in america should have some piece in... the outcome of this country, and hopefully we will hang on to free market systems for indefinite periods of time. it's provided for all of us the--all the various benefits of creation of new things along the way, and that was-- i think that's what we're doing. we're at the heart and soul of free enterprise. david: if you look back on your incredible career, you say, "i made a mistake or two mistakes," what would you say is the biggest mistake you made that you think, if you hadn't made it, you'd be even more successful? charles: well, i think, david, i've made a lot of mistakes, and every mistake along the way, i think i've learned something from that. david: so you have the benefit of having now five children? charles: yes. david: and 13...
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charles: 13 grandkids. david: ok, so-- charles: what a great chapter in one's life. david: do your children or grandchildren ever say, you know, "can you give me a stock tip or something? 'cause i got some money." i think you wrote-- i think your oldest daughter once asked you for some stock tips and you just told her, "just diversify." charles: well, i did, but i-- we have a mutual fund. actually, it's an index fund called the schwab 1000. i use that all the time for my kids, the etf portion of the thing. i've taught them all about it, but in some respects, it's a little bit boring. i'd rather have the kids buy individual stocks, so what i'm going to do, coming up this spring, we're going to introduce fractionalization of stocks, so you can buy a small fraction of facebook. david: or amazon. amazon has a high price. in other words... charles: amazon. david: amazon, let's say it's trading for $1,300 a share. some people can't afford $1,300 a share, so they could buy-- charles: how about $130? how about $13 worth? david: ok, so that's something you're going to be doing. charles: we're going--doing for the young people. david: ok, so, as you look back on your career,
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the most important lesson you've taken away from what you've done--is it to innovate, pay attention to technology, be nice to people? what would you say is the key lesson? charles: i think, have enough humility in business that--extract and--and have a team of people that you really honor that work with you because you can do so many more things with other brilliance around you, and i think that's one of the best things i've taken away from business, having--throw your ego aside and get with it, and the team really appreciates you honoring that. david: now, by the way, before we close, do y have any stock tips for me? charles: ha ha ha! i'm looking for a couple of stock tips. you have any good ideas of--i could do with my money in the stock market? charles: i think maybe you ought to consider, you know, i know carlisle a lot, and you've done a fantastic job. how about an index fund? ♪
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♪ ♪ announcer: supportor the pbs presentation of this program was provided by general motors. woman: the world is ever-changing. what hasn't really changed is the way we move around it. but that way is giving way to a whole generation of people who will charge their cars just like their phones and who will judge vehicles not by the rev of an engine, but by the hum of change. the start button an all-electric future has been pushed. ♪♪ you're watching pbs. ♪♪
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(uptempo jazz music) - my name is e.w. wainwright. i am a performing arts consultant, also a jazz musician. had a great career, i would say, over 50 years certainly, playing drums. starting with commercial music, and popular music, and then going into blues, and then eventually into jazz, which is my love, playing jazz. (uptempo jazz music) the kids call me baba wain. i teach them that you should call an adult by a title. - he said now, you can call me mr. wainwright, or you can call me baba wain.
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- baba in many, many cultures, means father, or older person in the community.

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