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Charles Schwab Inc recently sent me a copy of Charles Schwab’s autobiography “Invested”, which was just published. I thought, boy this is going to be dull, but I started reading it. Wow, was I wrong! This guy, writing in the first person, described upending the security industry just as many of our companies are upending their own industries. It’s like reading about Alteryx, or Okta, or Coupa, or any one of them. It’s damn exciting. All the big established companies hated him because he was cutting commissions on trades and they had invested years in establishing their high-cost, high salesman-commission models. It was Zscaler and Palo Alto all over again.

There had been fixed commissions where everyone charged the same outrageous commissions and then the government finally decided to deregulate commissions. That’s when he was starting Schwab, with lower commissions. However, he was worried that Merrill Lynch could afford to cut even lower and crush his new company. He couldn’t believe it on the day of deregulation when Merrill announced they were RAISING commissions on small investors and cutting on big institutions. Charles Schwab was saved! 😀

He wasn’t worried about making a profit in the early days, just growing as fast as he could before anyone else caught on. But the hyper-growth meant that they were always broke, having to raise money or sell stock, because growing that fast meant that they were having to hire more staff, more order takers, etc. And they discovered that opening an office in a new city would mean almost immediately an increase of ten to fifteen times more customers from that city, but the office wouldn’t pay for itself for nine months or a year (I think he said), but after that it would be all profit, so they built them out as fast as they could afford it, and they were always plowing back every cent of potential profit into growth. I thought I was reading about one of our companies!!! When they’d hit a correction and volume fell off, they risked going broke, but didn’t stop investing in growth.

He also computerized the process five to ten years before everyone else, using the most up-to-date technology of the time, which gave his company a huge head-start. Again, like our companies.

He was looking for clients who wanted to make their own decisions while the Merrill Lynch’s of the time had customers who were willing to pay high commissions in exchange for imaginary brilliant tips from their broker’s salesmen. Reminds me of us as opposed to others, as well.

He writes “I’ve always believed in growth over earnings. A colleague once asked me if I’d rather have a fast-growing company with modest earnings or a slow-growing company with higher earnings. I didn’t hesitate. I’d much rather see fast growth. In my experience, earnings follow growth and stock prices follow earnings. My philosophy is that with growth everyone wins: clients get better service, investors get a better return, employees get jobs and rising pay, the community gets support, and of course, the government gets taxes. As far as I’m concerned, growth is the key to creating wealth.”


Is that our kind of guy, or is that our kind of guy? I urge you to at least read the first 100 pages to see what all of our companies are currently going through, and you won’t be able to stop anyway with the excitement of one crisis after another.

Hope this will brighten your weekend, after a tough week.

Saul

PS - By the way, most of those full commission brokerage houses went out of business or were acquired.
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