WEBVTT - Businessweek Extra - Charles Schwab

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<v Speaker 1>This is Bloomberg Business Week from Bloomberg Radio. I'm Jason

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<v Speaker 1>Kelly and I'm Carol Master. Welcome to the Bloomberg Business

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<v Speaker 1>Week Extra. It's our weekly podcast bringing you an in

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<v Speaker 1>depth interview you will not hear anywhere else. And this

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<v Speaker 1>week it's with Charles Schwab, who really kind of blew

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<v Speaker 1>open the online brokerage business just a few weeks ago

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<v Speaker 1>when he decided to charge nothing for online trades. And

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<v Speaker 1>it was great to catch up with Chuck Schwab, Carol.

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<v Speaker 1>He's got such an amazing scope to his career and

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<v Speaker 1>the pioneering that he started forty plus years ago definitely

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<v Speaker 1>continuing today. Here's that conversation with Taylor Riggs and myself.

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<v Speaker 1>All Right, so there are a few people probably in

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<v Speaker 1>the investing world as well known and candidly as influential

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<v Speaker 1>as Chuck Schwab. So thrilled to have him here in

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<v Speaker 1>our studio in New York City. He's the founder, of course,

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<v Speaker 1>of the Charles Schwab Corporation, a pioneer in many respect.

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<v Speaker 1>Great to have you with us, well, Jason, thank you.

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<v Speaker 1>I love to come down and see Bloomberg keeps expanding

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<v Speaker 1>your communication capabilities. Are wonderful, wonderful for our business. Actually, well,

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<v Speaker 1>we appreciate that. So let's talk about your business. I

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<v Speaker 1>want to talk about your book. You've got a new

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<v Speaker 1>book out, it's called Invested. But before we get to that,

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<v Speaker 1>I gotta ask you about sort of the news in

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<v Speaker 1>the industry over the last couple of weeks. Pretty exciting.

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<v Speaker 1>So why now, what's happening? We just want to make

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<v Speaker 1>sure our investors get the best deal possible, and that's

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<v Speaker 1>called free, free trades. And so I've been on that

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<v Speaker 1>pursuit that mission basically for almost forty years because I

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<v Speaker 1>cut the commission's way back when when the regulation was permissible.

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<v Speaker 1>And I've been on that quest for now forty years.

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<v Speaker 1>So now we finally made it happen. Zero commission for transactions.

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<v Speaker 1>Now you might have to pay for other thing, but

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<v Speaker 1>for transactions, it's zero, right, So chalk, what's great for

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<v Speaker 1>customers is free. But how does that affect your business?

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<v Speaker 1>Some people are saying it could impact revenue by a

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<v Speaker 1>hundred million dollars a quarter. How do you make up

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<v Speaker 1>for that loss in revenue? Well, it's about four percent

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<v Speaker 1>of our revenue has been lost because of that. But

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<v Speaker 1>every time we've ever made it a better deal for

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<v Speaker 1>our clients. We get more clients, and we will make

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<v Speaker 1>it up in volume sort of speakcause people we have

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<v Speaker 1>many other services. We have money market fund, we have

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<v Speaker 1>mutual fund, we have advised accounts, we have other ways

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<v Speaker 1>to make some money depending on what the client is

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<v Speaker 1>looking for, uh, different levels of service and so. But

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<v Speaker 1>trades will be free, and so we'll just hope more

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<v Speaker 1>people will come and enjoy the benefits of SAL provides.

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<v Speaker 1>So when you talk about volume, Chuck, that obviously means

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<v Speaker 1>that probably scale matters. You've got a big piece of

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<v Speaker 1>the market. Now, are we going to see some consolidation here?

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<v Speaker 1>I think it's very possible. Well, I don't know whether

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<v Speaker 1>it will be successful in that pursuit, but I think

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<v Speaker 1>in the industry you're going to see more consolidation, more

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<v Speaker 1>firms getting together. You just have to have that scale

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<v Speaker 1>and volume. And so we're prepared to do it if

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<v Speaker 1>if the opportunity arrives, but if not, we're perfectly happy

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<v Speaker 1>to go alone. Chuck. Outside of volume, what do you

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<v Speaker 1>say to critics from the street or companies like Moody's

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<v Speaker 1>who had been taking a look at your credit writing

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<v Speaker 1>after this decision. What else do you say to them

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<v Speaker 1>about how you can also make up and grow despite this. Well,

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<v Speaker 1>you can look at the past. It's pretty easy to

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<v Speaker 1>see every time we've ever cut our commissions, it's always

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<v Speaker 1>led to more business. It's been very consistent over many,

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<v Speaker 1>many years. So this is not the first time we've

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<v Speaker 1>got commission just happened to be this time to zero.

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<v Speaker 1>Our cost in terms of running our business is extremely low.

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<v Speaker 1>We're probably the lowest cost provider in the business. UH

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<v Speaker 1>costs about fifteen basis points UH per dollar of asset

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<v Speaker 1>that we have at Schwab and to run the business,

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<v Speaker 1>that means all our web sites, all the services of

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<v Speaker 1>branches and so forth. So we really put a lot

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<v Speaker 1>of attention to our costs and so we're able to

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<v Speaker 1>deliver to our clients a better value we think because

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<v Speaker 1>of that, and so we're highly competitive and we'll continue

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<v Speaker 1>to be competitive. We have many new ideas. Of course,

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<v Speaker 1>technology has been really our friend in so many ways,

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<v Speaker 1>has allowed us to be more efficient and deliver our

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<v Speaker 1>efficiency on in terms of lower prices to our clients.

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<v Speaker 1>All right, so you talked about sort of the history

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<v Speaker 1>your history in this business, Jock and you lay that

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<v Speaker 1>out so nicely in this book, and it's funny. You know.

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<v Speaker 1>The book is called Invested, the subtitle changing Forever the

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<v Speaker 1>way Americans invest. I've read a lot of books, and

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<v Speaker 1>I know that often people are given to hyperbole in

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<v Speaker 1>their titles. This actually isn't hyperbole. It did it changed things.

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<v Speaker 1>I think it changed Wall Street dramatically for the better.

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<v Speaker 1>I think so many people have adopted some of the

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<v Speaker 1>same things that we put in place early on, and

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<v Speaker 1>people thought, well, it does work, it does attract customers,

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<v Speaker 1>do the right thing for customers, and may my goodness

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<v Speaker 1>people come to your front door right. So, using that

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<v Speaker 1>as a backdrop and thinking about putting this book together,

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<v Speaker 1>I would imagine you went back and thought about those

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<v Speaker 1>sort of catalytic moments over the course of your career,

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<v Speaker 1>not just the founding, but some pretty interesting moments along

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<v Speaker 1>the way, including a buyout that didn't go and that

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<v Speaker 1>pusion didn't know the way you wanted and l b

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<v Speaker 1>oh then following on to take it back, tell us

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<v Speaker 1>about those moments that really stick out to you. Well,

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<v Speaker 1>it's all laid out in the book Invested, and I

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<v Speaker 1>had a great fun actually took two years to write

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<v Speaker 1>the book with some a little bit of help along

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<v Speaker 1>the way, but all the stories are my stories, and

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<v Speaker 1>it was about starting out with four people, back in

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<v Speaker 1>four people. How we have over twenty thousand, we have

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<v Speaker 1>millions of customers and all that's all that great success.

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<v Speaker 1>But the book talks about this is not a straight

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<v Speaker 1>line up at all. There's been a lot of a

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<v Speaker 1>lot of downs, a lot of things that we learned

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<v Speaker 1>along the way. Took persistency and took commitment, It took

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<v Speaker 1>passion by many, many people who helped me along the

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<v Speaker 1>way to make a great company. And so I thought

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<v Speaker 1>it would be worthwhile to tell people about this great

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<v Speaker 1>entrepreneurial experience. But all so it lets my employees know

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<v Speaker 1>what we stand for as a company, the purpose of

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<v Speaker 1>the company, how we help customers, and why we love

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<v Speaker 1>our customers. And also we'd like to have our our

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<v Speaker 1>our customers themselves. Our clients read the book too, so

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<v Speaker 1>they know our commitment. And why was taking back the

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<v Speaker 1>independence of your company away from Bank of America so

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<v Speaker 1>important to how Charles Swab operates today. Well, I think

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<v Speaker 1>it's highly important that you we need to have a

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<v Speaker 1>company of investment company like ours in place or so

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<v Speaker 1>many of the giant firms, of these big investment banking

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<v Speaker 1>firms that don't really think exclusively about individual investors. We do.

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<v Speaker 1>That's all we do is think about our clients. How

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<v Speaker 1>can we do better job, and how the new innovations

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<v Speaker 1>using new technology to come up with new ideas, how

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<v Speaker 1>to make their life better in terms of their financial life,

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<v Speaker 1>and so chuck as you think about your customers right now,

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<v Speaker 1>let's talk about them. How they're feeling right now. We're

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<v Speaker 1>in the midst of the longest expansion economic expansion in history.

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<v Speaker 1>I mean, people are feeling pretty good. The equity markets

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<v Speaker 1>little volatility here and there, but generally the consumer feels good.

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<v Speaker 1>Tell us what you learn because you see them trading

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<v Speaker 1>every day. Well, I think our investors, you know, people

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<v Speaker 1>who have been with us for a few years or

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<v Speaker 1>know about the markets. They know markets go up nicely

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<v Speaker 1>and everyone's really happy about that. They also know markets

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<v Speaker 1>go down. Free markets go up and down. That's the

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<v Speaker 1>fundamental thing you have to understand about investing. And after

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<v Speaker 1>that you find out the potential from investing, how you

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<v Speaker 1>can really change the wealth, wealth for yourself, wealth to

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<v Speaker 1>your family, and gives you all these new opera tunities

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<v Speaker 1>that you might have as you go through life. So

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<v Speaker 1>you know, the only thing that really grows normally, like

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<v Speaker 1>real growth is companies. So investing in companies is a

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<v Speaker 1>wonderful way to go back. I always look at buildings,

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<v Speaker 1>for instance, one building bibe and that building always remains

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<v Speaker 1>the same. It never changes in size, it always remains

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<v Speaker 1>the same. Stocks can grow from one Hamburger shop to

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<v Speaker 1>ten to ten thousand. You know, one coffeemaker can take

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<v Speaker 1>a couple of couple of coffees and all of a

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<v Speaker 1>sudden is making millions a day. And that's but that

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<v Speaker 1>takes place over a period of time. It's called growth,

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<v Speaker 1>and that's what companies are able to do. Some of

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<v Speaker 1>the great companies are even do even more growth. I'm

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<v Speaker 1>talking about now more growth coming well. I think innovation

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<v Speaker 1>America is profound. I live on the West Coast where

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<v Speaker 1>so much of the new innovations pop up at times,

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<v Speaker 1>and it's it's just it's going to continue. The Internet

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<v Speaker 1>has been just unleashed so much capability I think, and communication,

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<v Speaker 1>and so I think there's huge opportunities new frontiers ahead.

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<v Speaker 1>We just have to hang on, keep our safe safety

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<v Speaker 1>builts on and right, make the right happen. Well, and

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<v Speaker 1>you're speaking my language giving given I'm out here in

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<v Speaker 1>San Francisco in the midst of all of that innovation

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<v Speaker 1>that you described. You were right, and that the markets

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<v Speaker 1>go out, the markets go down. Investors know this. But

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<v Speaker 1>as you look, do you get a sense that there

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<v Speaker 1>is a special type of nervousness from investors right now

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<v Speaker 1>that didn't exist, you know, a decade ago, two decades ago,

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<v Speaker 1>or does this feel business as usual? It's no different

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<v Speaker 1>today than it was ten years ago or twenty year thirty.

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<v Speaker 1>Let me tell you, Um, you go back, it's very

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<v Speaker 1>interesting to do this. Go back some time and read,

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<v Speaker 1>go to the library and get some of the newspapers

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<v Speaker 1>of ten years ago, and you'll see what I mean.

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<v Speaker 1>There's always some issue going on, and it changes. And

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<v Speaker 1>that's what the dynamics are of a free society. Keep changing.

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<v Speaker 1>That the stories a little different, but there's still fear agreed,

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<v Speaker 1>fear agreed to sort of up and down along the way.

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<v Speaker 1>And so just understand, as investor, you've got to be

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<v Speaker 1>a cool as a cucumber, let me tell you, And

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<v Speaker 1>just hang in there. Make sure you're diversified don't put

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<v Speaker 1>it everything in one little investment. Make sure you have ten,

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<v Speaker 1>twenty or some index funds or things like that that

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<v Speaker 1>really give you a breadth of experience and exposure to investing.

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<v Speaker 1>And so before we let you go, I gotta ask you,

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<v Speaker 1>what's the one thing you want to make sure people

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<v Speaker 1>take away from this book? I think I think it's

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<v Speaker 1>about the values that our company has and how sustainable

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<v Speaker 1>it is. And I wish more companies were able to

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<v Speaker 1>keep those values front and centered, not only with their employees,

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<v Speaker 1>but let their customers know what we stand for and

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<v Speaker 1>what they can expect. And how do you do that?

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<v Speaker 1>How do you do that on a daily base? How

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<v Speaker 1>do you, Chuck Chwab, I don't know I've done. I

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<v Speaker 1>spent a lot of time in different branches throughout the country.

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<v Speaker 1>I try to and try to instill my executives and

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<v Speaker 1>my CEO, who has embodied Walt Benger fantastic, how we

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<v Speaker 1>have maintained our values throughout these years. That was Charles Schwab,

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<v Speaker 1>of course, of the firm that bears his own name.

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<v Speaker 1>You and Taylor catching up with him, Taylor Riggs in yourself,

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<v Speaker 1>and I think it was interesting because we have seen

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<v Speaker 1>the world move to kind of a low rate, no

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<v Speaker 1>rate environment when it comes to trading. He took it further,

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<v Speaker 1>he did, and again he's always at the center of

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<v Speaker 1>the next thing in this business. Really good to catch

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<v Speaker 1>up with him. You've been listening to Bloomberg Business Week Extra,

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<v Speaker 1>we shorted Tune into Bloomberg Business Week Radio Live Monday

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<v Speaker 1>through Friday at two bum Wall Street Time on Bloomberg Radio.

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<v Speaker 1>I'm Karl Masser and I'm Jason Kelly. This is Bloomberg