David well, people wouldnt recognize me if my tie was fixed, but ok. Just leave it this way. Alright. I dont 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 . Were here today with chuck schwab, whos one of the bestknown 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 hes built, which is one of the leading Financial Service companies in the united states. Hes now just written a book, called invested, by Charles Schwab, and i want to talk about that and his life, which is incredible. Let me start by asking about something you made news with just recently. Your Company Announced youre not just going to do discount brokerage. Youre going to give away brokerage for free. In other words, if i want to buy some stock, i call up, i have an account, and i trade for free. How do you make money if im trading for free . Charles well, david, first, thanks for having me on your show. Ive had the opportunity to know you for a while so i feel very comfortable being here and letting you know all my secrets. [laughter] david alright, well tell me the secret of how you make money when youre not charging anything. Charles a long time ago, we started taking commissions down. Thats how we started, with lower prices along the way. Finally, we got down to 4. 95 and i said were so close to zero, lets go there. And i always had somewhat of a passion for what 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 well do very well offering our Services Free for transactions, and thats the commodity part of the business. The rest of us, we give people help and advice on different kinds of things, managed accounts, banking, all of those things. But the fundamental service we want to provide is free. David so i should not worry about chuck schwab and not making money because youre giving charles you should not worry about it. David ok. Charles were giving up 4 of our revenue in that decision. David for those who dont really follow this, you started as a discount broker, where you were giving lower commissions than the standard rates were before. Today, youve become a conglomerate, in effect, in the Financial Services 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. One of the things, were a conglomerate. Were really not in the original sense. We only focus on what we can do for individual investors and advisors who have individual investors . David so when you started doing this more than 40 years ago, did you ever envision that you would be in more than the discount brokerage business . Did you say i was going to build a giant conglomerate or not . Charles i did not, david. Certainly, we had a very limited view of where we were at the time. But frankly, we thought the original business only had 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, there are many, many people who wanted help and advice. David let me ask you about something that some people say makes you so well known. Its that your ads in your company for many, many years have featured your face. Charles i started Charles Schwab and company from the investors 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, our Company Started with a shoestring. We didnt have much money. And i had a tough time raising money because wall street certainly didnt want to help me develop competition for them. So, as a consequence, our ads, when we first started the business in 1975, it would be one column by three inches. Come and save 75 on your so people kept coming into our company. So 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 the old machines, and there i was, my directing advertiser said, why dont we use your picture sometime . It will show that theres real people here. I said, are you kidding me . Whats my mother going to say . Whats my father going to say . Whats my wife going to say . And my friends . That im some kind of egomaniac . They finally convinced me after some conversation. He said just try one. I tried one. The results were up tenfold, because i think people thought, theres a real person behind this business and i can identify him. I can certainly look for him in the post office. He isnt up on the wall, so i know to do business with him. So i think that helped. Anyway, my friends got over it. David when you walk downtown in San Francisco or anywhere in the country, but certainly in San Francisco, can you walk without having people say theres chuck schwab, and ask you for stock advice or something . [laughter] charles yes, well it happens on occasion, which im always honored to have that happen, but for the most part, people dont really recognize me. 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 100 shares of ibm, you had a broker and he or she would write down 100 shares of ibm, they do something to go to the stock exchange. Charles we teletyped it to the exchange at that time. David ok. Charles everything was written and teletyped at the Central Place in new york. Execution, the client bought about 100 shares of ibm at 50 a share. Of course, very early on, we were very early adopters of a lot of technology 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 was an early adopter, and so we were one of the first ones to adopt internet in 1995, i think it was. 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, we found out early on, very early on, at that time, about 50 or 60 of our customers wanted to come into a branch and make sure theres real people behind the counter, that they could see that. So, our numbers, once we opened offices in the location, our numbers went up substantially. David you had better technology, perhaps. You spent more money on technologies than others. You had your face, which everybody got to like, and you also had the Branch Offices. But theres one other thing that really made your company grow, from reading your book, it seems to me, you decided to do more than discount brokerage. You came up with an idea in effect of having people buy mutual funds through your platform. Charles that was a big innovation. David can you explain how that works . Charles when i first started business, mutual funds were sold by salesmen, obviously. Got Big Commission for doing it, up to 9 of the money invested went to commissions, and the salesmen got half of that, well say. I thought noload 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 cant i offer this service to everybody . A noload kind of transaction thing. So we went to the noload companies. They were all small. Give us a little piece of your management fee, and well offer your fund for free to our whole network of schwab clients. And clients loved it. David so, you were the ceo from the beginning, and then eventually you had a coceo. Then the coceo had a heart problem, and he had to step back, and then you brought somebody else in. But you, at one point, you kicked yourself upstairs and made yourself chairman. Charles i did. I did. Charles then somebody else was running the company, and it didnt work out, so you came back in for three years to run it again. Was that something you wanted to do . Charles 2004, i came back in. I wasnt sure i wanted to do, but obviously i love the company so much that i came back in in 2008. I retired again as ceo. I had Walt Bettinger take over, and hes done a fantastic job for the last 10 or 12 years. David right. Charles and so but im always sort of hanging around as the compass of the company. I gotta keep pushing the people who are going this way, its north. David so when you graduated from Stanford Business school, did you say, im going to join a private equity firm or a hedge fund . Charles as a kid, i wanted to find out how i could be successful . So, i found Financial Services was the way to go. David so, one of the causes you have is something id like to talk about. Youve been very open about it, unlike many people who have this problem. Its called dyslexia. Charles right. David for those who arent familiar with it, it basically means its 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, is that you had it for much of your life, and you didnt know you actually had it. Charles right. David can you explain it . Charles our youngest son was about seven or eight. We had him diagnosed. It turns out he had all the similar, identical issues that i had as a young student, all the way through school, and was now just only seven, and he had it all the way through the rest of his career. It was a really aha moment for me to understand that yes, he got it, obviously, through 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 that had identified kids with this issue. Turns out, one in seven people have some related issue around dyslexia, some learning difference. David so when youre young, and youre dyslexic, and there is no term for it yet, or you werent diagnosed, did you just think you werent that smart or did your parents think, well, he isnt that good of a student . How did you actually get through school . Charles early on, i read a lot of comic books. I read classic comic books. They had the picture, a few words, but i got all the stories. Whether it was moby dick, a tale of two cities. I was a wonderful student in the classics, but i got it through comic books. David but if youre dyslexic, or someone is dyslexic, does one compensate by hearing better, observing better, or being very good in math, as you are . Charles i think its a issue, fundamentally is what it is. Its the conversion of code to sound, and then to meaning, and then the reverse is true for writing. Because of that defect in our brain, were slow readers. David you were not a great student, i guess, because of dyslexia in high school, but you have said in your book that maybe you got into stanford because you were a pretty good golfer. Charles i am a pretty good golfer. I dont think it makes the academics too happy i got into stanford anyhow, but the fact was the coach was looking for some talent in the golf area. David did you play golf at stanford . Charles i did play golf at stanford, only as a freshman, and only for a period of time. I almost flunked out. I was not prepared for college at that moment. David you graduated from stanford. You went to Stanford Business school. You did pretty well at Stanford Business school. Charles i did. David when you graduated, did you say, im going to join a private equity firm or hedge fund or what did you do . Charles no. I always wanted to do research. As a kid, i wanted to find out how i could become successful. That was important to me. I 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 Services was the way to go. So at age 13 or 14, i began to think about this thing, stock market, and i went to stanford economics, Business School, all Financial Investment management, all of that, in my early career. Then i worked after 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. Theyd come and sell us their stories. So i got to know the fundamentals of how wall street functioned. Its all by sales commissions. And some were bad incentives. David alright, so youre doing investment reports, but eventually, you realize you wont 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, i started really in the early 1970s. I saw how difficult this business was. Its built upon brokerage was built upon how well companies could make money, the brokerage companies, and not how customers really wanted to do business. So, as it became in the conversation in 1973, in 1974, congress, the sec all thought that the Commission System was really not a particularly good one, particularly a fixedrate thing, and so the beginning of the end of that started in 1974. We had the test period, and then 1975, boom, we went to mayday. David so, when you wanted to start the company, did you just go down to Silicon Valley and say, hey, give me some money. I have 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. 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 and buy our company and i came from nothing, as i mentioned. 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. We were associated with the b of a, the largest bank of the time, and that was four years of that before i bought the company. David it sounds like a great idea. B of a, which is the epitome of the establishment, is buying this little, Renegade Company which is not the establishment. You not only sell it for 52 million charles a lot of money. David a lot of money. Also, you got on the board with bank of america. I think at the age of 43, you were the youngest person on the board. Charles Something Like that. And one of the largest shareholders. David the largest individual shareholder, the youngest person on the board, the establishment is there and you dont regard yourself as the establishment. So what can go wrong with that . It sounds great. Charles well, it sounds great then, but then the bank fell on some bad times. We couldnt continue to do our progression of new services. For instance, one case, we could not even develop our own money market funds, because the bank had to get permission because they were in trouble by their operational issues and loanloss issues, that we couldnt get the Federal Reserve to approve us to do our own money market funds. David ok. Charles and then i thought it was time that we should get out of the company. David well, you had one advantage of buying it back. You had the right to your picture. Charles i did. I had the name and likeness that went with me, and they could sell the company. We finally came to terms. David who was the clever lawyer that told you to keep your name separate . Charles i dont know. I thank him every day. Let me tell you. [laughter] david you bought it back for lets say 250 million to 300 million more or less. How did you feel . You sold it for 52 million, but you had to put up 250 million to 300 million to buy it back and, you know, a lot of your own money to do that. Charles david, back then, when i sold the company, the valuation, i sold it for about three times revenue. When i bought it back, i bought it for three times revenue. 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 to them, and a fair deal when they sold to me. David but you did whats called a leveraged buyout. Charles i did. David and it was a leveraged buyout, and you were advised by one of the leaders of the industry, George Roberts from kkr. So, you had a lot of leverage. In those days, leverage was higher than its today. Than it is today. So, you had a lot of your net worth tied up there, and you also had a lot of your debt ahead of you. Charles i had all of my net worth there, and then some. David so you decided to try to deleverage quickly. The same year you bought it back, you decided to go public. Charles i did. David that was pretty courageous. Did anybody tell you that wasnt a good idea . Charles a lot of people. I said i needed to deleverage as quickly as i possibly could and fortunately, we did. Shortly after going public, we had the crash of 1987. That was another complication. David did that affect your business at all . Charles of course it did. Our stock dropped from 15, the ipo price, down to 6. David so your net worth went down a little bit . [laughter] charles yeah, more than half. That didnt bother me. Because 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 as you look back on your career, the most important lesson you have taken away from what you have done, is it to innovate, Pay Attention to technology, be nice to people . Charles 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. David so your company now has a market value thats staggering compared to what it once was. I think your market value is about 56 billion. Something like that . Charles Something Like that. David 56 billion, and youre the biggest single individual shareholder still. Charles yes. David so, you have a net worth yourself thats 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, who is subject to criticism for not supporting such a tax . Charles i think its wrong directed, in many ways. I think we, as a society, and you probably dont talk about it as much, and i dont either, our philanthropy. And i feel like thats an obligation of all of us. I came from, really, nothing. I had plenty of incentive to create what we created. Of course, my wife and i have spent a lot of time over the last 20 years giving back money to different causes that we really think need improvement, whether its education or the art world or alzheimers issues. You name it, were probably supporting that. David so, youre a pretty famous face and obviously a famous person. So, in california, when youre famous, sometimes you say, 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 cant do it. I cant put everything in some trust and so forth. And i really felt that this is my purpose in life, develop a company like this. We have benefited so many people. Politics wasnt really my maybe if i was king. I like to make i guess i like to make things happen quickly. David so today, the way you view youre contributing to the country other than paying taxes, building up the company, do you spend any time advising government officials or do other things related to government . Charles well, im obviously very actively involved in politics. I think every individual in america should have some piece in the outcome of this country, and hopefully well hang onto free market systems for indefinite periods of time. Its provided for all of us, all the various benefits of creation of new things along the way and that was i think thats what were doing. Were at the heart and soul of free enterprise. David if you look back on your incredible career, and you say i made a mistake or two mistakes, what would you say is the biggest mistake you made that you think, if you hadnt made it, youd be even more successful . Charles i think, david, ive made a lot of mistakes and every mistake along the way, i think ive learned something from that. David so you have the benefit of having five children . Charles five children. David and 13 grandchildren. Charles yes. 13 grandkids. What a great chapter in ones life. David do your children or grand children ever say, can you give me a stock tip because ive got some money . I think you wrote your oldest daughter once asked you for some stock tips and you told her to diversify. Charles well, i did. We have a mutual fund, an index fund, called the schwab 1000. I use that all the time for my kids, the etf portion of the thing. Ive taught them all about it, but in some respects, its a little bit boring. Id rather have the kids buy individual stocks. So, what im going to do coming up this spring, were going to introduce fractionalization of stocks. So you can buy a small fraction of facebook. David or amazon. Amazon is a high price. Charles amazon. David amazon, lets say, is trading 1300 a share. Some people cant afford 1300 a share. So they can buy charles how about 130 . How about 13 worth . David ok. So thats something you will be doing . Charles well be doing it for the young people. David so, as you look back on your career, the most important lesson youve taken away from what youve 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 to extract 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 thats one of the best things ive taken away from business. Having throw your ego aside, get with it, and the team really appreciates you honoring that. David now, by the way, before we close, do you have any stock tips for me . Charles [laughter] david im looking for a couple of stock tips. Any good ideas of what i could do with my money in the stock market . Charles i think maybe you ought to consider, i know carlisle a lot, and youve done a fantastic job. How about an index fund . Emily airbnb was sailing on top of the travel world, expanding from a global home sharing juggernaut into experiences, hotels, and transportation. On the verge of filing paperwork to go public in what was expected to be the biggest stock listing of the year. Then came covid19, and travel came to a standstill. Airbnb had 1 billion in cancellations almost immediately. Then came angry hosts. We are collectively outraged. Emily layoffs, and the economy went into recession