Persistence never waivers

In the latest TV spot from Charles Schwab & Co. our founder shares his perspective on the current crisis, by recalling previous crises endured and overcome by his generation. It’s a compelling spot, heartfelt and poignant. But it’s not a new idea borne of the current circumstance. Chuck built his career, and our company, around a principle of abiding optimism and that persistence toward a better outcome always wins the day.

Chuck of course speaks from experience. Indeed the current spot has echoes from the very tough days of the financial crisis when Chuck was also a voice of reason.  In the following excerpt from his recent memoir, Invested, he describes that time of crisis:

“Throughout the crisis, Schwab was in fine shape. Not just fine, doing well. In October 2008, for example, at the height of the crisis, we opened 30,000 accounts, up 88% over the year before. Our branches logged five million client interactions that year, a number I couldn’t have fathomed when I started Schwab. All that we had done to get through our reorganization in 2004 through 2006 put us in a solid position to ride out the storm. We weren’t the young inexperienced firm we were in 1987 during that market downturn.

But all that success didn’t make the situation feel much better to me. Despite all the government was doing to stop the financial crisis, and all we were doing for our clients, investors were panicked. Our clients were no exception. The branches and telephone service centers were flooded with questions about what to do— or worse, receiving panicked ‘sell- it- all’ orders. ‘Should I get out of the market?’ That was the common refrain. I’d seen this play out before and felt I needed to speak out and do what I could to calm nerves. The natural inclination as an investor is to run when the stock market plunges. I knew that was the wrong thing to do. History was proof of that. I asked the marketing team to get me in a studio as soon as possible. We flew out to New York, and on a cold day in October 2008 we spent it in a loft on 14th Street repurposed as a film studio to tape a set of video messages from me.

With bright lights and sound technicians and all the other production people cramping around me, the director had me read take after take of scripted remarks. It just wasn’t working. It didn’t feel genuine. I was stiff, uncomfortable. I wanted to talk to my clients in the clearest and most sincere way, not through stilted, careful, perfect lines. After dozens of awkward takes I stopped the production, tossed the script, and had my communications person simply ask me some questions, which I answered from the heart. ‘The most natural instinct is to run for the door. To sell. Sell everything,’ I said. ‘You’ve got to fight that emotion because you want to be able to hang on for the recovery. Which has happened every time we have had an experience like this in my career . . .  and that goes back now some 40 years . . .  nine different cracks in the market like this. Smart investing is about taking it year by year by year. It is a little bit of a nightmare, but we handle those by living through them and looking forward to a better day.’

Did I get the timing right with my advice? Not exactly. You never do. And that’s exactly the point. The market bounced around for a few months after we started running the TV spots in January 2009 and then took that final dive to the bottom on March 9. But timing the market is impossible. As the saying goes, it’s not timing the market that counts, but time in the market. By the end of 2010, the Dow Jones was back to where it had been before its precipitous slide on September 29, 2008. Had you invested in the Dow Jones Industrials, the S&P 500, or even more broadly into the Schwab 1000 Index (the largest 1,000 companies in the United States, accounting for 90% of the U.S. market) on the day we shot those television clips, despite the additional downward move of the stock market for five months, within a year you would have been up nearly 25%. Unfortunately, too many people jumped out of the market during that painful 18-month bear market— and then they missed the turn afterward. Like other turns before, it came unannounced and moved fast.

Investing is all about being a part of companies that create new value. And that will continue to be true, but we go through these undulations in the process of discovery. ‘The bottom line,’ I said, ‘is that you’ve got to be somewhat optimistic and know that the future will be better than the past.’ I believed it then, I believed it when I started Schwab against so many odds, and I still believe it today. To be a successful investor, you have to be optimistic.”