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Q&A: Charles Schwab
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September 29, 2000: 1:48 p.m. ET
The brokerage founder talks about the market and merger speculation
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - Charles Schwab is founder, chairman and co-CEO of the brokerage that bears his name. The Charles Schwab Corp. recently topped $1 trillion in customer assets. Schwab spoke with CNNfn.com about the market heading into the fourth quarter and his views on the brokerage industry.
CNNfn.com: You say there are some choppy months ahead for the market, until the presidential election is over. What should investors do heading into the fourth quarter?
Schwab: I'm actually very bullish on the market. We've come through a period of serious consolidation and peaked it out in January of 2000. And  we've had tremendous corrections in a variety of industries. We've seen the craze of the dot.coms come and go, and we've seen many other industries, telecommunications to computers to retail, faced with severe drops in prices.
Some people might call it a bear market. Definitely it is a significant correction. The old saying of 'buy low, sell high' still is in effect. Prices are substantially lower than they were nine months to a year ago. In my view this definitely is a time to buy, and to reposition an existing portfolio.
CNNfn.com: Do you think some of the unsexy industries that have been hot, like REITs and utilities, will continue to be strong next year?
I'm not so optimistic about REITs and utilities. Those are reactive to interest rates generally, and fuel and energy prices. They're basically slow growers. I would be more interested in buying the companies that I knew were going to have significant, continuing revenue growth. For tech stocks, the companies that have prospects for substantial growth over the next five years are the companies that I would go into. Internet is still a profound change.
CNNfn.com: Schwab Chief Strategy Officer Dan Leemon and co-CEO Dave Pottruck had been meeting with Goldman Sachs executives. Is it true that, despite the rumors, there are no plans for a merger right now?
Let me just put it this way. Goldman Sachs are very good friends of Schwab. They've helped us on a couple of mergers that we've done over the years, and we've done a number of IPOs with them. We will continue to do business with them. There's no conversation about any combination between the two companies, it's pure speculation. Very simply, we are two completely differently driven companies. They are extremely institutional. We have the passion for the individual retail investor.
CNNfn.com: There's a lot of financial-services consolidation. Do you think a brokerage like Ameritrade can remain independent?
They would definitely be a takeover target. It's hard to see them being a long-term independent company. It's very difficult to make money on an $8 trade, and do it consistently while your prospective client base mostly appeals to Generation X. The really successful companies, and I'd like to put Schwab in that category, have the ability [for investors] to see face to face with professional staff. When you deal with money, 60, 70, 80 percent of customers come into an office to set things up. After that, 85 percent may be done through the Internet. But there are issues about financial matters that really require face-to-face contact. You just can't do it all through a stranger.
CNNfn.com: How did it feel to see Schwab go past $1 trillion in assets?
 It's actually a great watershed for us to go through a trillion. A lot of people don't realize what a trillion is. It's a thousand billion. It's a lot of money that we are a custodian for. That, to me, is the true measure of success of a financial-services company. That is the mark of a company that has obtained and captured the trust of its customers.
CNNfn.com: You've been described as 'The nicest billionaire you're likely to meet.' What do you think about that?
[laughs] That's a great compliment. Being successful financially is one of those nice things to accomplish in life. But it's also a burden too. You have to think about how you're going to share it. I spend a lot of time trying to figure out ways to help people who are not as advantaged as I am. So it comes with responsibility, success.
CNNfn.com: Last year you came on CNN's Moneyline and said you were worried about hyperactive traders. You then bought Cybercorp, which caters to very active traders.
There's two parts to that. The overly active investor, who's just simply gambling without any vision about where they're going -- that's not a particularly appropriate way to go about making money in the market. There are professional traders who have been very successful. You'll see a lot of them on the floor of the stock exchanges, and as Nasdaq market makers.
Cybercorp has intelligent-order routing, a tool for professional traders that gets the best direct price. It circumvents market makers. But you're competing directly with market makers and specialists on floors of exchanges. That requires you to be active at that screen all the time. You are a professional trader. This is only for a small fraction of investors, who have the time and the inclination to be there.
CNNfn.com: Do you think the people who were gambling on the market have learned an unpleasant lesson this year?
I think most of them have been cleaned out. Those [day-trading] seminars, the housewife coming down with $10,000 and trying to become a professional trader, it was ludicrous. It was completely inappropriate as a way to go about investing and to make your money in the market.
CNNfn.com: Have investors become leery about the market in general?
Yes. Whenever the market goes down, people generally get leery about the market. That's just the nature of the beast. When the markets are up, everyone is euphoric. When the markets are down, everyone gets depressed. That's the psychology of the stock market. To take advantage of that, you have to understand when people are really depressed. They're in that period right now. That's usually the signal to think about buying. 
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