Berko: Is Schwab a good investment?
Friday, November 08, 2013 7:00 AM
Dear Mr. Berko:
On many occasions, you’ve recommended Charles Schwab as a discount brokerage. So I called Schwab’s toll-free number to open an account and purchase 400 shares of its stock. After the usual “press 1, 2, 3 and 4,” I was put on hold for more than four minutes and forced to listen to useless stock market updates, plus self-serving promotions of Schwab’s banking and mortgage expertise. This experience was very unpleasant and annoying. I hung up, called again and was placed on hold once more. I’m not so prickly as some of my legal colleagues, but I don’t like wasting time holding a phone to my ear and waiting for a stranger to pick up. A colleague of mine who uses Schwab called to ask about Build America Bonds. He hung up after an interminable wait for someone to come to the phone, saying this is “too common.” He told me he just moved to another brokerage because Schwab’s people take too long to respond.
Mr. Berko, you should check your brokerage recommendations as thoroughly as you research your stock picks. Which brings me to the following question: Would you buy Schwab shares as a 12- to 18-month investment, the above problems notwithstanding?
C.C., Durham, N.C.
Ouch! For grins and giggles, I rang for assistance at Schwab five times in the past two days, and good gosh Macintosh, you’re as right as an admiral. It was a disappointing experience. On the second day, I connected with a helper after a three-minute wait. Unfortunately, he was as dumb as an engine block and failed to transfer my call to a knowledgeable associate. However, most folks initiate trades on their computer, using their broker’s Internet platform, which doesn’t require human involvement.
Your experience is typical of what’s happening in businesses all over America. Corporations are reducing staff to increase profits, knowing darn well that it erodes consumer service and satisfaction. But they also know that most consumers are wussies and complaints usually stop at the end of their tongue. Consumers will moan and groan for a while and voice various unprintable observations. But the consumers realize they can’t change the system, so this inferior service becomes the new normal. Some of us remember the mid-1950s, when gas was 18 cents a gallon. Three smiling guys would service your car. One checked your tires. Another washed your windows and checked your oil, while a third put gas in your tank. Today, with gas at $3.50 a gallon, it’s fast, efficient and courteous self-service; and they even charge $1 for air that you pump yourself. Corporate America, like Schwab, is run by clever guys who strive to increase shareholder value by increasing profits. Realizing that consumers are basically unorganized, feckless patsies who are easily manipulated, corporate America will reduce as many service personnel as possible, stopping just before our complaints reach critical mass. That’s what Charles Schwab Corp. (SCHW-$23.10) is doing. SCHW’s knows that the mandates of Obamacare may cost the firm between 10 and 12 cents a share for its 14,000 employees. So SCHW, like most of corporate America, is fixing the problem now rather than later.
However, SCHW, which hasn’t traded this high in a dozen years, could be a sweet 18-month investment. Some believe revenues this year will top 2008’s record revenues of $5.1 billion by a few hundred million, though earnings of 75 cents per share will remain below the $1.06 of five years ago. And many believe that the 2014 market will continue higher because Janet Yellen, who will be the head of the Federal Reserve, may increase the Fed’s stimulus to $125 billion a month, believing it will reignite the economy. The Obama administration demanded that the Fed’s current chairman, Ben Bernanke, raise the stimulus, but he adamantly refused, arguing that an increase would be economically ruinous and make an exit strategy impossible. Former Fed heads Paul Volcker and Alan Greenspan agree. However, the additional stimulus would continue to jack up stock prices. So next year, the Street suggests SCHW could generate $6 billion in revenues, with projected earnings between 98 cents and $1.02 per share. Buy SCHW, even with its lousy service.
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