Invest in Companies that Put the Customer First

Ray greeted me as soon as I stepped off the elevator.

He knew from the beginning this wasn’t a done deal … not by a long shot. If I didn’t feel comfortable after the meeting, the deal was dead.

I told him as much after exchanging pleasantries, but Ray just smiled. “I hear you,” he said, “but this guy isn’t your typical Wall Streeter.”

Ray walked me to a curtained-off area of the Rainbow Room at Rockefeller Center to a man sitting at a small table.

The man, already a household name by that point, didn’t need to tell me who he was.

But that didn’t stop him from standing up and introducing himself to me anyway.

I was polite, but I had my game face on. Earlier in my career, I’d attended many meetings just like this one.

CEOs would turn on the charm, feign interest and say anything to get your business.

But that wasn’t happening today.

Even though we’d make more money moving our business to this man’s company, he understood that money wasn’t my motivation. My clients’ needs came first, and I wasn’t there to negotiate.

But as it turned out, our interests were aligned.

The man told me he had the same dedication toward his clients as I had for mine.

In fact, before his company made any major change to its business, he’d only ask one question: “How does this benefit our customer?”

If that question couldn’t be answered, the pitch died then and there — no matter how much money their company stood to gain.

If the customer didn’t come out ahead, the idea wouldn’t see the light of day.

The more we spoke, the more comfortable I began to feel. He seemed genuine — quiet and unassuming. And he listened more than he talked.

After our meeting ended, the man told me to take as much time as I needed before making my decision. “I’ll do right by your people,” he told me as we parted. “You have my word.”

I didn’t even reach the lobby before I’d made up my mind…

Putting Customers First

The man I met that day was Chuck Schwab … founder of The Charles Schwab Corporation (NYSE: SCHW) — the largest publicly traded brokerage firm in the United States.

Over the next few months, I transferred all of our client accounts over to his brokerage firm.

I was so impressed with the level of service and customer support we received, I opened up a personal account with his company and set up custodial accounts for my kids.

That was close to 30 years ago, and all of my accounts are still open.

Today, Schwab is still gaining market share each and every year.

I credit this success to that North Star question this man, and his company, always asked: How are we benefiting our customers?

And it showed…

Prior to May 1, 1975, retail investors were forced to pay extremely high trading commissions.

Investors used to be charged a fixed rate regardless of the size of their trade, and the cost to trade just 100 shares of a company could be hundreds of dollars.

So, these costs took a huge bite out of investors’ returns.

The commission structure favored the big institutions that could negotiate lower rates with brokerage firms.

But the SEC pushed to level the playing field for small investors and won the battle against the New York Stock Exchange when it fought back.

For the first time in the 180-year history of the stock market, trading commissions would finally be negotiable.

May Day led to the creation of discount brokers, which gave rise to the do-it-yourself investor who did his own research and didn’t need any handholding from a broker.

Schwab saw that this new commission culture presented him with a great opportunity, so he decided to open up his own discount brokerage firm in Sacramento, California.

Then, in 1984, Schwab launched the first mutual fund supermarket, which gave customers the choice to invest in different mutual fund families.

Always putting his customer’s experience first, Schwab made this process as easy as buying or selling a stock.

It wasn’t long before Schwab’s innovations and customer focus began to pay off.

By August of 1985, Schwab already had 1 million client accounts. And by the end of the year, client assets totaled $7.6 billion.

In total, the company currently has $8 trillion in client assets, 34 million active brokerage accounts and 15,000 independent investment advisors using its platform.

All of this success comes down to one factor … customers come first.

Invest in This Engine

As a customer for over 30 years, and spending time with Mr. Chuck Schwab, I have personally seen how management underpromises and over-delivers.

The ever-growing customer base allowed Schwab to make one of the most radical moves in the history of the brokerage business… Cutting the fees to trade stocks down to ZERO.

It shocked the rest of the brokerage industry, which was built to nickel and dime customers to death.

But Schwab put its customers first.

So this chart doesn’t surprise me at all… When a business puts customers first, shareholders win.

Companies that are obsessed with their customers — truly obsessed — have created absolute fortunes for shareholders.

When a company is so obsessed with its customers, it creates a nearly unbreakable bond between customer and company…

To the point where the customer would never dream of going anywhere else — THAT’S a perpetual customer engine.

I’ve been researching this ever since I left my first meeting with Chuck.

When you find a company like that…

Hold on tight — because shareholders could make absolute fortunes.

Because a true perpetual customer engine sets off a powerful chain reaction that in the past, sent shares rocketing not for a month or two … but for years: