I met Chuck Schwab back in the 1990s.

His team invited me to the Rainbow Room in Rockefeller Center.

Schwab wanted my firm’s business.

They had just created a financial advisory business to service professionals.

The sales team saw I was hesitant to move my clients to Schwab, so they arranged the meeting.

They told me: “You’ll see he cares for his customers like you care for you clients.”

And they were right. After I met Chuck, he put all my fears to rest.

He told me that the first question he asks before Schwab tries anything new is: How does this benefit our customer? If it can’t be answered in a nanosecond, they don’t do it.

Schwab was my kind of people.

That’s why my whole family has had brokerage accounts with Schwab for the past three decades.

Here’s why Schwab is a great business…

  1. Scale and size — As the largest publicly traded brokerage firm, Schwab offers services at lower costs compared to competitors. And it has the advantages of a large client asset base ($8 trillion).
  2. Low-cost provider — Schwab can offer lower fees and expenses than competitors given its size and scale, which attracts more customers.
  3. Asset gathering machine — Schwab’s low-cost structure helps attract client assets. That means the company can invest in growing — which also means lower costs and improving its services.
  4. Customer service — Schwab focuses heavily on customer service. They’ve created what I call the “perpetual customer engine” — people just keep coming back for more.
  5. Trusted brand reputation — Schwab is known for integrity and stability. Customers trust it.

Now, here’s where Alpha Investors break from the Wall Street herd…

While Wall Street focuses on the stock price, we focus on the business.

From the business perspective, we continue to like Schwab.

But Wall Street doesn’t like it in the least. In fact, The Charles Schwab Corporation (NYSE: SCHW) is the worst-performing stock in the S&P 500 this year:

Charles Schwab Stock Performance

Based on my research, the stock is trading way below the worth of the business.

And that’s because Mr. Market is missing the big picture, BIG time. Here’s how…

Miss #1: Performance

Shares of Schwab are down 33% this year compared with the S&P 500’s 14% rise and the S&P 500 financial sector’s 1.5% decline.

The stock dropped in March because of fear after several regional banks collapsed.

My Take: From day one, I shared with you that investing in stocks is a marathon, not a sprint.

The key is patience and the temperament to not get overly emotional when stock prices soar higher, or plunge lower.

Because stock prices follow the fundamentals of the business … not the other way around.

That’s why we focus on the business, rock-star CEOs, mega trends pushing them higher — and buy only when the stocks trade at attractive prices.

The chart above, is a short time frame … simply because the earth rotates around the sun every 365 days, doesn’t mean a company’s stock performance should do the same.

If you want steady returns, buy a T-bill. I’d take a lumpy 15% per year over the long term, than a steady 8% per year, anytime. 

Miss #2: Deposit Scare

After the fear set in over bank collapses, deposits started to drop … for six consecutive quarters.

Charles Schwab Bank Deposits at Quarter End

Schwab had to find other sources of funding and turned to the Federal Home Loan Bank and issued certificates of deposit — which were more expensive.

And in its latest quarterly report, Schwab reported increased “cash sorting.”

Cash sorting is when clients pull their cash out of low-interest rate accounts and put it into higher-yielding assets — all within Schwab.

My Take: Investors confused cash sorting with a run on the deposits.

In the past, cash sorting weighed on earnings in the short term, but had very little impact over the long term.

Schwab has plenty of liquidity to cover withdrawals so they experienced net inflows since depositors still saw them as a safe haven.

And when you follow the client assets since 2019…

It’s more than doubled from $3.5 trillion to $8 trillion. The number of brokerage accounts nearly tripled, from close to 12 million to more than 34 million.

They also acquired TD Ameritrade, which added $1.6 trillion in assets and 14.5 million in brokerage accounts.

Client assets act as the flywheel that drives brokerage accounts. So, the more assets Schwab has, the more profits it makes.

It’s that simple!

Miss #3: Revenue & Net Income

Revenue and profits at Schwab have fallen for four quarters. Net interest revenue has also slipped for three consecutive quarters.

Charles Schwab Profit & Revenue Quarterly

My Take: I don’t focus on the last three or four quarters. Our time frame is measured in years.

There is nothing terminal on revenue or earnings … it’s just the normal ebb and flow of a business.

Miss #4: Daily Trades

The daily average trades in the third quarter sank to its lowest levels since Schwab’s acquisition of TD Ameritrade in 2020.

Charles Schwab Clients Daily Average Trades Quarterly

My Take: Not a factor. Market’s go up and down, and it reflects on traders’ activity.

Over the next 10 years, will there be more activity or less?

There’s a high probability it will be much higher and there will be more trading. Also, Schwab clients wait out storms by buying other Schwab products.

Keep in mind, as long as that $8 trillion is in Schwab’s house, good things will happen.

Bottom Line on Charles Schwab Corp.

Charles Schwab is experiencing what I call “short-term noise.” It has nothing to do with the business.

This is why Alpha Investors are long-term investors — even when it means going against the crowd.

It’s like Warren Buffett says:

“If you own your stocks as an investment — just like you’d own an apartment, house or a farm — look at them as a business. If you’re going to try to buy and sell them based on news or something your neighbor tells you, you’re not going to do well … Find a good bunch of businesses and hold them.”

He never made predictions based on the daily gyrations of the market. Instead, he asked himself if he’d like to own a quality business and hold it.

Because eventually, the stock price follows the business.

And if you zoom out to see a long-term chart of Schwab, you’ll see that investors could have made 380X:

CSC Investors Could Have Made 380X

(Click here to view larger image.)

Schwab’s volatility is a gift. It’s now offering investors an even better price to buy in.

If you want to see my full analysis on The Charles Schwab Corporation (NYSE: SCHW), I just featured it in a recent Alpha Investor newsletter:

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Find out how you can become an Alpha Investor now by clicking here.

And you’ll learn how to have the Alpha mentality and be bullish when others are fearful … because that’s where the real money is made.


Charles Mizrahi

Charles Mizrahi
Founder, Alpha Investor