Q&A – Charles Schwab
Charles Schwab likes to personally greet his guests in the lobby of his office. An office, no less impressive than his resume, that sits on the 30th floor of Charles Schwab & Co. overlooking San Francisco’s financial district.
The man who redefined investing is as personable as the ‘Chuck’ America knows from his Fortune 500 company’s widespread advertising campaign. Pointing to a bruise on his finger from a recent range session and eagerly checking the mail for his new golf clubs, the Atherton resident for a moment sounds like the everyday golfer. Armed with collegiate golf experience from Stanford, several rounds in the 60s, a close friendship with Phil Mickelson and memberships at Burlingame, Cypress Point and San Francisco, Schwab is no ordinary golfer.
The thoughtful 68-year old is a reliable 8 handicap index who tries to play once or twice a week and doesn’t believe in business golf. The former caddie who overcame dyslexia still relies on lessons from his childhood just outside Sacramento.
Business is better than ever as Schwab & Co. stock rose 40 percent over the past 12 months, but as evidenced by the putter in the corner of his office, golf is never very far from his mind.
- How early were you interested in investing?
- I got interested in investing when I was about 13. I didn’t really invest then but I started following the stock market. My Dad was a lawyer and had an interest in the stock market so I started following the quote pages and I saw how they moved up and down quite a bit and got to understand why they were doing that.
- What do you think families can do to get kids more involved in investing?
- It is incumbent upon every parent to introduce investing and how savings leads to the capability to begin investing. What are the opportunities? Why do you invest? Obviously it’s the opportunity to participate in the growth of a company or a group of companies or a S&P 500 mutual fund. Growth you don’t necessarily get with a bank account – you’re a saver, you get interest but you don’t really get participation in the growth of a company or companies that might be available in a mutual fund. Returns by investing over a long haul are probably closer to 11% compounded including inflation versus maybe 3 or 4% in savings account.
- How did you get ahead of the curve and realize the financial world was changing?
- I had good early experiences, I worked for a small investment advisory firm in graduate school. I worked there nights and on weekends. I was about 23 when I started to get more intensely interested in how the financial services industry was structured and began thinking about how it might change. One of the summers while I was at business school I worked at a bank so I had exposure early on to not only advisory services but also brokerage, banking and a little bit about insurance.
- What are you most proud of in your company?
- I’ve been a part of helping the average investor or wannabe investor find a way to participate. Sort of what someone called the democratization of investing. It’s where the little investor has a better/easier way into investing or costs or spreads, easier access with the Internet, or branches or face-to face. I have been a part of all of that… the quiet revolution that took place in the world of investing, and indeed in the last 25 years we have had a huge influx of new people, new Americans investing.
- When did you start playing golf?
- I can remember my first experiences at golf were having lessons with a bunch of other kids. I must have been nine years of age at the Yolo Fliers Club in Woodland. But we moved from there to Santa Barbara when I was about 12. But by the time I was 14, I started playing more and caddieing.
- I read that you invested some of your caddie money.
- Well I did. I worked hard as a caddie and tried to save it.
- Probably not many caddies do that.
- Yeah, most of them probably just spend it. But I’m from an age group where savings was more important than it is today. Most of our parents and grandparents lived through the Depression years so every conversation was about how tough it was during the Depression years. As a young kid, you were very impacted by how important it was to save and then invest.
- Was caddieing more fun than chicken farming? (Note: Schwab grew up was raising chickens outside of Sacramento.)
- Yes, thankfully it was. I really enjoyed my years as a caddie because I would caddy for these older people. It was a great experience for me because you learn the rules of golf and how it relates to life, and you learn a lot from the adults you work for. I found out the harder I worked and the better I could read putts, the better my tip was. So there was a high correlation between good performance and incentive compensation.
- Were you recruited by Stanford to play golf?
- I got into Stanford because of golf. Back then they didn’t really have scholarships as such for golf. But I remember the Santa Barbara High School golf team played the Stanford freshman, and I had a great first nine, even par or one under and I really impressed the Stanford coach. The Santa Barbara High School golf team almost beat the Stanford freshman and that got the attention of the golf coach, who then wrote a very favorable letter when I applied.
- What do you think of business golf?
- Golf is a tremendous way to spend four hours with people. You really get to know the other person quite well; you see them under all kinds of life circumstances in a very short period of time. I don’t ever deliberately play business golf. But frankly, I think it’s an overstatement about golf and business and business outcomes. Certainly for people who are in business who play golf – it’s a nice way to get to know people better and so that’s always been a wonderful advantage. I used to play a lot of tennis but that was never quite as social or sociable as a round with three other people on the course.
- Not making any deals on the golf course?
- No, no you make deals in your office.
- Has golf taught you anything about business?
- I think there are so many parallels between golf and other aspects of life. Golf certainly teaches a lot of things that are really applicable to a successful business career. And like anything else – you’ve got to balance your golf with your work. You can’t play golf all the time and think about a successful business career.
- Are you nervous on the first tee at the AT&T Pebble Beach National Pro-Am?
- Always. My pro hits it dead straight 285 with a 3-wood and I’m standing up there and they are clapping for him and then it’s my turn. They call my name and I just hope to hit the ball and get off the tee.
- What was it like to play with Phil Mickelson when he shot 62 at Spyglass?
- Well, it was like seeing someone create history. It was a perfect day and it was the first round of the AT&T. All the other greats had been down that same path. And for some reason that day, it was an amazing thing, I can remember every shot. Phil ends up with a 62, two strokes better than any other person who had completed that course from the back-back tees.
- Do a lot of golfers ask you for investing advice?
- We trade investing advice for golf tips, so it’s a fair exchange. But the secret in investing is not finding one good company to invest in, it’s a group of companies. It’s using vehicles that are really convenient like mutual funds. You want to find the funds that have low expenses and participate in the great growth of America and have a good track record.
- How did the Schwab Cup come about?
- We had been a sponsor of what was then called the Senior Tour and also the PGA Tour. The PGA Tour came to us about the Senior Tour (now the Champions Tour) and we wanted to try this because it meant a venue in 20 different cities where we had offices, so it was a great way for our employees to entertain clients. The Schwab Cup itself I discussed with Tim Finchem, the concept of a cup that they would get cumulative points for and end up in a wonderful event like we have in Sonoma.
- Who would be part of your dream foursome?
- I think I’ve been there before. I think Phil is a very special guy and golfer. I’ve never played a full round with Tiger so that’s definitely something that would be fun. I’ve played with most of the senior guys from Watson to Nicklaus to Arnold and most of the other top names. I never did play with Hogan, but you might say that would probably have been fun to watch because I understand he was not a talkative man.
- Any memorable bets on the golf course?
- You put just a nickel on the thing and it changes the whole perspective. It’s amazing how a little element of competition whether it’s 10 bucks or 5 cents is pretty important because of that thing called pride – you want to win. But I’m not a big bettor normally speaking, because I do enough of that in my business.
- What was your involvement with the reconstruction of the fifth hole at Pebble Beach?
- Don Lucas and myself were an instrumental part of that whole project. At the time, the Japanese owned the Pebble Beach Company and they needed some partners to buy six acres. The deal was they wanted the new 5th hole and then Don and I would each get a buildable lot. But it took at long time and we had to go through the various approval processes, but I think everyone is satisfied with the final outcome.
- What’s in you bag?
- I’m just about ready to make a change. I recently went down to the Callaway plant in San Diego with Phil Mickelson and it just so happens they found some irons and some shafts that made my ball have a little better flight and a little more distance, and it flew a little straighter. So I am waiting on UPS right now to deliver the new clubs.
- How often do you play golf around the world?
- I’ve played golf in China, Australia and New Zealand. I’ve played golf all around Europe. It is a wonderful way to see part of a new country you might be in. The local golf club may not be as fancy as your home one, but it’s such a universal game. Heck, it doesn’t make a difference what you shoot. We are always pursuing a better score but that’s the neat thing about the game – you’re never satisfied.
- How much of a golf fan are you? Do you watch the majors on television?
- I either watch all of the majors directly or record them and watch them later. To see these players at the top of their sport, you almost think it’s a different game from what you play. But it’s fun to see them and be with them and it deepens my appreciation for the game.
- What is something our readers wouldn’t know about you?
- I would love to be a caddie. If things didn’t work out, I knew I could always fall back on a career as a caddie. I was pretty good at it, but fortunately my career went a different direction.