January 07, 2025 | Read Online

The Real Robinhood

Before the trading app, Robin Hood was an old English legend.

Based in the city of Nottingham and forest of Sherwood, Robin was an outlaw who battled against the corrupt Sheriff of Nottingham on numerous occasions.

His generous spirit became a worldwide symbol for fighting against injustice.

It also became an inspiration for one of the most famous finance companies in the world.

commander in chief

Charles was an unassuming teenager who grew up in Sacramento and later moved to Santa Barbara.

He was an easygoing kid with good communication skills. Played on the golf team and worked his way up to the captain spot. His friends called him Chuck

But he had a glaring weakness that added a wrinkle to his early years. Charles struggled with dyslexia, and almost no one knew.

I bluffed my way through much of it, I'm sure. Fortunately, I have a pretty 'up' personality, and that helped me all the way through. I tried hard and had pretty good communication skills, so I could persuade my teachers that I was a pretty good kid.

Charles

In the quantitative disciplines, Charles was elite. His math and science scores carried him to Palo Alto, and he enrolled at Stanford in 1955

He failed both English and French that year.

Though painful, the shortcomings never killed his ambition.

Economics was his dear friend, and Chuck opted to mingle with matters of consequence rather than wrestle with prose and poetry.

In 1959, he graduated from Stanford with a BA in Economics, and in 1961, he graduated from Stanford Graduate School of Business with an MBA.

In 1963, he launched a newsletter with two business partners.

The publication was called Investment Indicator, and it lived up to its name, giving astute advice on stocks and bonds
At its peak, it had 3,000 subscribers paying $84 annually
The company incorporated as First Commander Corp, based in California

❝

I never perceived myself as stupid; I can't explain why. I just thought that if I worked harder, maybe something would happen.

Chuck

Each move proved smarter than the last.

The American financial sector was about to undergo a monumental shift.

Before talking about what changed in the 1970s, let's take it back to the 1600s, when the ideological principles of public equity markets were established.

In 1602, the Dutch East India Company was the world's first initial public offering (IPO). Article 10 of the charter stated that "all residents of these lands may buy shares in this Company."

This statement was the difference between the Dutch East India Company and preceding capitalistic ventures.

Anyone who was a resident could buy any amount of shares, just like the public markets of today.

The Dutch East India IPO saw 1,143 investors join, including 2 maids.

peak "democratization of finance"

The American capital markets are inextricably linked to the Dutch.

In 1624, the Dutch founded New Amsterdam on the southern end of Manhattan. In doing so, they also built a wall on the northern boundary to protect New Amsterdam from English invasions.
The street on which the wall was built was known as Het Cingel (the Belt), a place that we now call - yes, you guessed it - Wall Street.
By 1664, the English had taken over and renamed the city New York, but both Wall Street and Dutch influence remained.

Now back to 1970.

At the time, financial brokerages charged a fixed commission rate of 2%. The high cost of trades directly deterred public participation in public markets, and eventually, the FTC caught wind of what was going on.

FTC Chairman Paul Rand Dixon applied pressure on the SEC to take action, and after seven years, the Securities Acts Amendments of 1975 were passed.

The act:

established a national system for clearing and settling transactions
created the Municipal Securities Rulemaking Board (MSRB) to write rules for investor protection
eliminated the fixed 2% commission rate, which led to the rise of discount brokers

The original power players of the 1970's were instantly under attack from emerging platforms. Newer players were allowed to charge any fees they wanted, which drove costs down for consumers and increased the number of retail stock owners by 25% in less than 5 years.

Average costs of owning a stock plummeted by 80%+.

made in 1982

One of the new brokers was Waterhouse Securities. Founded by Lawrence "Larry" Waterhouse after the Securities Acts Amendments of 1975 were passed, the company's mission was to provide access to financial services for all.

Waterhouse was known for industry low commissions, free investment research, and elite customer service.

Waterhouse went public on NYSE in 1987. The raise allowed the company to expand to $300B in customer assets and 200 offices
TD Bank acquired Waterhouse in 1996, forming TD Waterhouse in the process
TD Waterhouse was acquired by Ameritrade in 2005 to form TD Ameritrade

Back to our guy Chuck.

When the Securities Acts Amendments of 1975 passed, Chuck and his business partners opened up a discount brokerage in Sacramento. They changed the company name from First Commander to

rich off newsletters

After initial success with the Sacramento branch, Charles Schwab expanded rapidly throughout the state. Operationally, Charles Schwab focused on the customer by (a) cutting charges to consumers in half and (b) paying salesmen a fixed wage rather than a commission. The year is 1977

Six years later, Bank of America bought Charles Schwab for $55M

Four years after that, Charles Schwab and other members of management bought the company back for $280M.

Later that year, Charles Schwab went public at an estimated $500M+ valuation.

Today, Charles Schwab is worth $150B+ on the stock market.

On September 22, 1987, 15 years since I bought out my partners in First Commander and launched my fledgling company on a wing and a prayer, and just six months since buying Schwab back from Bank of America, trading in the Charles Schwab Corp. commenced on the New York Stock Exchange under the symbol SCH.

We went off at $16.50 per share, well above the $12 to $14 range we had anticipated when we first contemplated going public. The total value of the 8 million-share offering was $132 million (we closed at $16.625). Within 24 hours we wired $87 million to Security Pacific Bank, not the whole nut but enough to lessen our debt burden and still leave us with a comfortable cash cushion and ensure smooth operations even in a choppy market. A huge chunk of my discomfort with our debt had disappeared. At the same time, my net worth took another huge leap forward. My personal stake in Schwab was now worth $100 million. I was by any measure a rich man, wealthier than I had ever imagined. It was less than 100 miles away, but Woodland, Calif., and all my parents' worries about money seemed a universe away.

Charles Schwab, Invested: Changing the Way Americans Invest

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