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Schwab leery of stock addicts
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May 20, 1999: 9:41 p.m. ET
Charles Schwab says he shares SEC chief's worry about out-of-hand investors
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NEW YORK (CNNfn) - The head of the largest online brokerage company is alarmed about how investors are using online brokerages, he said Thursday, including his own.
Charles Schwab said he worries about online traders who get out of control. "We're very concerned about it," he told the Money Line News Hour with Lou Dobbs, "when we see people getting excessive in their trading, almost becoming addicted to it."
Those traders don't understand the true nature of investing, he said. He normally holds his own investments two years - "at least," he added. But the day trading phenomenon bothers him, he said. "They're just flipping around moment by moment."
Schwab, chairman and co-CEO of the corporation that bears his name, said he didn't think Securities and Exchange Commission Chairman Arthur Levitt was that far off the mark with his criticisms of online trading.
Earlier in May, Levitt called some online trading "gambling" and said he was worried that uninformed investors would make bad decisions, encouraged by online brokerage ads that portray online trading as easy money.
Charles Schwab Corp.'s investment subsidiary, Charles Schwab & Co., is the largest online brokerage, handling half of all Internet stock trades.
But its leader said it only has about one half of 1 percent of day traders, "fortunately." Day traders prefer cheaper alternatives to Schwab, he said.
Schwab's commercials now emphasize education and informed investors, he pointed out. Though other online brokerages such as Discover Brokerage Online and E*Trade have broken the mold of staid financial commercials, those very mainstream, and main street, advertisements have made some industry watchers uncomfortable.
In a speech May 4, Levitt overtly criticized Discover and the ads of another online brokerage, Ameritrade, for overstepping the mark. Schwab & Co.'s commercials hew to a more traditional line.
Charles Schwab told Moneyline that 70 percent of his company's new accounts still come in through the doors of its branches. "People really want to see someone face to face," he said. "Then they get introduced to the Internet, telephone services and the like."
Unlike its online competitors, Schwab has an extensive network of branches in the United States.
Still, Schwab will focus on offering more applications and features online this year, he said, without being more specific.
-- by staff writer Alex Frew McMillan
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