Charles Schwab's "Invested" (Book Review)

The Charles Schwab Corporation (SCHW) is synonymous with discount brokers and rightfully so. Charles Schwab was one of the first to give individual investors the tools to fight against the Wall Street establishment by offering discounted commissions. Unheard of forty-five years ago. Before Schwab formed his eponymous company in 1975, retail investors primarily paid sky high fees, usually 10% of the investor's money. By offering a plain-vanilla service of just trade executions, he slashed prices dramatically, by as much as 75%, and opened the floodgates for self directed, Do-It-Yourself market participants. The company's namesake is equal parts financial visionary, trailblazer, and leader of the pack. Recently, Mr. Schwab penned Invested: Changing Forever The Way Americans Invest, a first person account of his life in the trenches. If you enjoy reading about modern stock market history, good business autobiographies, or tales of perseverance, this book is for you.

The narrative begins on May Day of 1975, when government deregulation of the brokerage industry ensued. This allowed Charles Schwab to offer a cut-rate investing service in a cut-throat business. Soon after, the author does a quick flashback to his youth. What really stands out is that Schwab has dyslexia, which makes reading and studying very difficult. With moxie and determination, he made it through Stanford, undergraduate and B-School. Schwab sites other business leaders such as John Chambers of Cisco (CSCO), Craig McCaw who pioneered wireless telephone services, and Richard Branson of Virgin Galactic (SPCE) that all experienced successful business careers despite the disability. He also has a hard time writing which is a surprise by the smooth prose in the book. Schwab said the dyslexia taught him to think conceptually which enabled him to think of something as far fetched as a discount brokerage company. These days they call it "thinking outside of the box".

Throughout the work, Schwab makes no bones about being a renegade startup going after the White Shoe firms such as Merrill Lynch. At times, it has the vibe of investing classic Where Are the Customers' Yachts? by Fred Schwed. Schwed's book was written at the tail end of The Great Depression, and pokes fun at the financial industry. According to Charles Schwab: "We didn't want advice from brokers, because we knew that advice was tainted. How could a broker truly have my best interests at heart when his livelihood depended on generating commissions?". He also says: "A traditional broker is trying to take your capital and turn it into his income as fast as possible.". Schwab wanted to do it completely different than Wall Street. It's an authentic David vs Goliath story. Like the Charles Schwab Corporation which is headquartered in San Francisco, he notes that other successful discount brokerage firms were all located far from Manhattan, most notably E-Trade and Ameritrade (AMTD).

Recently, the industry has marched lockstep to zero commissions. However, historically Charles Schwab has never been the least expensive discount broker, but they always tried to offer their customers the most value. That dyslexic mind and his team introduced many of the features that pushed investors to their service in droves. They got into technology early and in a big way to increase efficiency. Without the technological advancements, they would have been dead in the water. In pre-internet days, they were the first firm to offer touch-tone trading on your telephone and updated that service with reliable voice-recognition software. Schwab wasn't the first company to offer Web based trading. That distinction belongs to K. Aufhauser & Co. in 1994 (they were later acquired by Ameritrade). Nevertheless, once Schwab established a digital presence, they were the innovators by introducing after-market-hours electronic trading, wireless stock alerts for pagers, and the first wireless trading platform for cellphones. They became a self-sufficient technology powerhouse.

Although the hardcover version of Invested runs approximately 330 pages, the majority of the book takes place before the year 2000. Mr. Schwab goes into significant detail about Black Monday in 1987, and the dot-com crash. In fact, he discusses boom and busts several times in the book, noting he's seen nine market crashes in his life. Some of the notable manias he's been a part of are the housing bubble of 2008, the color television bubble, the photocopier bubble, and least we not forget the bowling bubble of 1961. That said, the most noteworthy market busts that impacted him as CEO were the 1987 crash and the dot-com implosion. His company went public just two months before Black Monday. Talk about being at the right place at the right time. If he hadn't raised that capital from the IPO, the company probably wouldn't have made it. But they did. If you were an original investor and held your Charles Schwab stock from the 1987 outset, "With dividends reinvested, you would have had about 19% average annual growth rate for the stock, twice the rate of growth for the S&P 500.".

It wasn't always smooth sailing for the company. He began during the soft market cycle of the 1970's. The underlying theme for Mr. Schwab and his team is that they aren't afraid to make changes in order to remain ahead of the curve. In the early 1980's he sold the company to Bank of America (BAC) which gave legitimacy to the fledgling industry. Three years later, when Bank of America got into financial trouble, Schwab bought the company back with a leveraged buyout. The years immediately after the dot-com bust were particularly difficult for the Charles Schwab Corporation. He restructured the organization numerous times with plenty of layoffs. As the founder put it: "We had been the Forbes magazine's company of the year in 2000 at the height of the dot-com bubble, the top-ranked securities firm in Fortune's Most Admired listing in 2000-2002. But by the middle of 2004, our brand and reputation had slipped and we'd fallen off those lists.". But he came roaring back. In fact, he came back so strong that the Great Recession of 2007-2008, wasn't particularly challenging for the business.

Peppered throughout the narrative are what can best be described as Schwabisms, small quips that reminded me of a Twitter (TWTR) tweet. Some examples are:

• We were all a little guilty of assuming that since things were going so well, we must be geniuses.
• There is a central truth about investing: time is on your side when there's plenty of it; it can be your worst enemy when it's scarce.
• I've gotten comfortable with the roller-coaster ride that comes with a market correction and the resolve it takes to ride through it successfully. It's not easy and I don't believe it comes naturally.
• Social Security is at best a minimal standard of living. If you want anything beyond that, you've got to be an investor.

About every ten pages they pop up; just sit there on the page and don't detract from the overall story.

The Charles Schwab Corporation has been a category killer from day one. It was created to be the kind of firm that the founder and Chairman would want to do business with. Originally a Wall Street pariah, now the company is a member of the S&P 500. Many times Mr. Schwab bet the farm and came out on top. An avid golfer, he just plays it as it lays. Although he's seen plenty of booms and busts, Schwab's always been optimistic about the market. How else are you going to make money? Recently the Charles Schwab Corporation agreed to buy TD Ameritrade. The combined companies should be an investing powerhouse for years to come.

Ed Yardeni's "Predicting The Markets" (Book Review)

On July 6th, CNBC's Squawk on the Street featured economist Ed Yardeni who called for a market melt-up despite the ravages of COVID-19 on the economy. This probably didn't surprise most market followers since Yardeni is considered a permabull in investing circles. What the interview didn't tell you is that Yardeni made a prescient call of a market pullback of around 20% early this year before the market cratered. He also gave clients sell signals for financial stocks in 2007, and dot com stocks in the late 1990's. He was bearish then, but not bearish enough as stocks sold off more than Yardeni anticipated. He doesn't hit the bullseye every time, but he gets pretty close which is why he's had an illustrious 40 year career on Wall Street. Yardeni has a lot of street cred coining phrases such as "Bond Vigilantes" and "Hat Sized Bond Yields". He recently published Predicting The Markets: A Professional Autobiography. A better subtitle may have been: Everything You Wanted To Know About Economics But Were Afraid To Ask.

Yardeni is not a maverick economist, but he does march to the beat of his own drum. What makes him unique, is that he wears two hats. The first being chief economist, and the other is chief investment strategist at his own firm Yardeni Research. He began this dual role when working at Deutsche Bank in 1999, which was new among the major Wall Street firms at that juncture. He's an eternal optimist about the American economy because, "recessionary quarters accounted for just 15% of all quarters from 1948 to 2016.". Recessions tend to be quick. He sees a lot of room to run, particularly with the BRAIN [Biotechnology, Robotics, AI, Nanotechnology] revolution. With the advent of quantum computing, Moore's Law may have a much longer future than some technologists predict. Yardeni emphasizes that pessimism sells. He quotes Warren Buffett to buttress his point: "Fifteen hundred different individuals have been featured on Forbes' list of 400 wealthiest Americans since 1982. You don't see one short seller among them.".

Predicting The Markets is a treasure trove of economic history and market intelligence going back to the Great Depression. At 550 pages, you don't have to be a glutton for punishment to read it cover to cover, but it sure helps. That's why I believe it's best used as a reference book. Read a section at a time. Skip the ones you aren't interested in. Chock full of dense data, you may lose interest if going too quickly. Information from chapter to chapter overlaps because Yardeni repeats some of the facts and advice which I think is helpful. It reinforces complex statistics and concepts in a readable format. For instance, the chapters on Consumer Behavior and Demographics seem to converge, especially when discussing the Baby Boomers and Millennials. Many economic concepts are joined at the hip. The author also gets deep in the weeds breaking down various economic sectors and sub-sectors. As an example, when discussing the FOMC [Federal Open Market Committee] statement, he includes explanatory paragraphs concerning: Staff Review of the Economic Situation, Staff Review of the Financial Situation, Committee Policy Action, and so on and so forth.

Yardeni is a self-professed "recovering macroeconomist". Throughout the book, he takes jabs at academic macroeconomists and their theoretical models. And I quote: "Macroeconomists are professional meddlers who feel a calling to make the world a better place. Our ingrained conceit is that without our meddling, the economy would perform pitifully, stumbling into recessions on a regular basis. It might never even regain its footing without our help...I often must remind myself that my day job is to predict how the policy wonks will do their job, not tell them how they should be doing it.". As a microeconomist, he believes financial prognostication is better suited for a jack-of-all-trades, master of none (although a proficiency in economics is required). A simplified definition of a microeconomist is one that focuses on the catalysts of companies and individuals that dictate their buying patterns. As a result, he puts a large emphasis on human behavior.

What I found particularly refreshing throughout the narrative is that Yardeni admits to his mistakes. For instance, he comes clean about being early in his cautionary statements concerning the dot com craze. He began to lighten up on technology stocks in 1997, but was eventually vindicated when the market imploded. One of the main reasons he is probably so honest is that there's no place to hide being a public figure. All of his calls are well documented in the financial press or on his Website www.yardeni.com. One instance is when he was on the PBS News Hour in late 2006 doing a point/counterpoint with Nouriel "Dr. Doom" Roubini about the outlook for the housing market. Roubini won the debate, but Yardeni changed his stance in early 2007, and concluded the subprime problem was as large as the S&L crisis. You don't hear much about Roubini these days which is one of the underlying themes in the book: doomsdayers may get it right once, but rarely ever achieve a command performance. Yardeni doesn't name names, but talks about the bearish soothsayers that claimed the market was at an "endgame" or on a "sugar high" back in 2010. Better to be long the S&P 500 and get the 7% uptrend since its inception in 1935.

Artificial Intelligence is everywhere these days. It's so pervasive that saying your organization has A.I. is like saying you've got corn in your Cornflakes. Although very bullish about the American economy, Yardeni discusses the impact Schumpeter's process of creative destruction and the "paradox of progress" in the era of A.I.: "On balance, society benefits from creative destruction, as this creates new products, better working conditions and jobs. But it also destroys jobs, companies and industries - often permanently.". He speculates about moving forward: "In the Brave New World that is rapidly evolving, technology might make the situation worse as automation, robotics and A.I. displace workers. We may have no choice but to impose a tax on robots and provide a universal basic income [UBI] to support lots of people who are unemployed in the world.". For a conservative, he seems like a rational thinker. That's probably why he's remained relevant for four decades.

There's been two big knocks on the book. One I agree with and the other I don't. The one I concur with is that there are no charts or graphs in the text. You have to go to www.yardeni.com to access the tables and diagrams which takes away from an uninterrupted read. Granted, they're updated regularly, and they would have added another 100 pages to an already large tome, but I would have preferred to have everything in one place. The other criticism that I don't understand is that the book is a big public relations stunt to induce people to subscribe to his services. Writing is about informing and selling, either the book or the subject you're discussing. I think Yardeni did a great job at both. He's got game and the résumé to back it up. Predicting The Markets was selling for $40 at the time publication. You can buy it for $16 now on Amazon. In addition, if you are cost conscious and don't want to subscribe to his service, he has a blog at blog.yardeni.com which is free.

I Had Too Much To Dream

With the COVID 19 pandemic roaring across the globe, I've been put in a situation where I've got too much time on my hands. There's the mandatory lockdown; lots of time to read, write and ruminate. Plus, watch TV if I'm so inclined. Many ideas are percolating, but I'm not taking action. Just want to write this blog until a vaccine is discovered, or the virus subsides on its own. Then I can travel. If you've been following these posts, you've probably noticed that I've recently transitioned to writing financial and economic book reviews. It's just something I'm going to do for awhile. They keep me current. Plus, I don't like doing crossword puzzles to keep my mind active. It also gives my day more structure when I'm on a reading and writing schedule. Seeking Alpha has published some of the reviews, and I am grateful for that. It gives me more exposure and that's what you want as a writer.

Business and economics is primarily fixated on Artificial Intelligence nowadays. I have a love/hate relationship with these technological advances that move at light speed, and we're just getting started. Don't want to be left behind. Having a grasp on what the digerati are doing will keep me off life support. It's the surveillance economy with "Santa Claus is Coming to Town" as the rally song: "He sees you when you're sleeping, He knows when you're awake, He knows when you've been bad or good, So be good for goodness sake.". They're everywhere. Especially Facebook and Twitter. You can go from headliner to also-ran in a heartbeat with the ubiquitousness of social media platforms. You've got to be careful what you're saying and watch your step. It's like a minefield. At my age, I should know better, but that may not be enough.

Recently, I've seen a television commercial for a meditation smartphone app called "Calm" on frequent rotation. The thirty second spot has no dialogue, just footage of a rainstorm soaking a sunlit meadow with the mellow ambient audio accompanying it. Ripe for a rainbow. Seems too touchy-feely to me. I tend to drink a lot of coffee and listen to Heavy Metal music from a forgotten era. I'm a relic now. Way out of step with what's deemed popular culture. When you get down to it, it's been that way for thirty-five years. Ever since I began reading to a fault. My tastes in creative video content seem to be archaic, too. Turner Classic Movies is my preferred cable network. Even with my contemporaries, I'm out in left field. Back in the 1980's when my peers were climbing the corporate ladder, I was down and out in Philadelphia. No phone, no food, no pets. I ain't got no cigarettes. You know the old song.

Although we're in Phase III of reopening in New York State, I'm still very cautious when I go out. Masks and social distancing are the norm. Plus, I stay in a lot, and as a result, am experiencing some déjà vu because of the isolation. It brings me back to my first year in Philadelphia when I was alone. Television reception was lousy in Center City with no cable, no Internet, and it cost an arm and a leg to call long distance. I wrote a lot of letters. 1984 at its finest. I had a futon and a boombox in a three story walk-up studio apartment. Didn't have many cassettes, and would listen to The Minutemen Double Nickels on the Dime endlessly. One song on the album is "There Ain't Shit on T.V. Tonight". Apropos then, and apropos now, even with being inundated with multiple options on Netflix. I just can't get into binge watching.

Since there's hardly any televised sports except for NASCAR and golf, and the movie theaters are closed, I recently signed up with Netflix for the third time. Tried the free trial month twice and dropped it. I tend to tune into baseball during the summer months, so Netflix hasn't been a priority in the past. I opted for the least expensive package - one screen in standard definition even though I have an HDTV. I just don't watch enough of their offerings to justify the extra money per month for High-Def and a second screen. I'll see how it goes. If I view one movie every thirty days, it pays for itself. In June I watched the Netflix Original Da 5 Bloods directed by Spike Lee. Not one of his better movies, but the acting was superior. I'm tending to spend more time streaming The Roku Channel for their retro options. Some of the television series they feature are in the same vein as Turner Classic Movies, in black and white instead of living color. Shows such as The Outer Limits, Roger Moore in The Saint and Peter Gunn.

(Craig Steven as Peter Gunn)

If you're not familiar with Peter Gunn starring Craig Stevens as the title character, you may have heard the theme song written by Henry Mancini. It's been performed by almost every bar band from here to Helsinki. My favorite cover version is by The Cramps off their album Big Beat From Badsville. The series ran from 1958-1961 during the tail end of first Golden Age of Television. An era that has greatly influenced me. Gunn is a suave gumshoe from the Cary Grant school, and keeps running into members of what they used to call The Syndicate. He gets into lots of fights and shootouts, and always seems to land on his feet, sometimes with the help of the Hepcats that hang out at Mother's cocktail lounge. Gunn uses Mother's as his office, and the smoke filled bar's house band is fronted by sultry songstress Edie Hart played by Lola Albright. She's Peter Gunn's girlfriend. A real corker. The double entendre banter backstage between sets is good old fashioned dialogue. The band plays cool jazz that was popular at the time, reminiscent of the Chico Hamilton Quintet featured in the Burt Lancaster feature film Sweet Smell of Success. One of my favorites.

I've watched a few of the first season episodes of Peter Gunn with mixed feelings. Some of the thirty minute segments are good, others not so hot. It takes me back three decades when I first got cable, and there was a 48 hour Alfred Hitchcock Presents marathon on Nick at Nite. They were promoting it to go on regular rotation. I used a VCR to record almost every episode. I must have taped close to 50 of Hitchcock's best stories. Found out that for every five segments, one was a gem. Some of them classics with great actors such as Joseph Cotton and Ralph Meeker. Was it worth all the time and effort I spent in front of the tube? Probably not. That's why I'm reluctant to spend too much more time with the smooth shamus in Peter Gunn. That said, I'll give it some more time. There's something about a guy in a sharkskin suit with a skinny tie and a small brimmed fedora chain smoking Chesterfields that keeps me wanting more. Desperate times call for desperate measures.