Something Old, Something New

David S. Pottruck, president & co-chief executive officer of Charles Schwab, answers questions on blacks and investing

as warning clients about the dangers of day trading. Has Schwab done the same thing?

POTTRUCK: We don’t have any traders like Mark Barton. We have none like that. We don’t have any people that are trading to those levels, number one. Number two, we monitor the portfolios of our customers. And when they have excessive losses, we try to cut them off or prevent them from continuing to lose money at that level.

B.E.: What kind of cutoff are we talking about?

POTTRUCK: Well, every customer’s situation is different. We have a progressive set of letters we send people to inform them that they’re losing money. So we really don’t have that kind of a problem or trading profile at Schwab.

Of course, you have to be concerned. Our society is becoming more violent. We haven’t put armed guards in all our branches. We’ve tried to respond to the security fears and concerns of our employees. We have a branch in Atlanta that was very concerned about this, some worries about copycat homicides, so that had us paying attention. We did beef up security [the first couple of day after the shooting], especially in our branches in Atlanta.

I think day trading is a convenient scapegoat for people who want to go blame something that’s new and different. Let me suggest that day trading has many issues. Some of the practices that go on, the promises that are made that suggest that a guy who drives a cab one day can be a multimillionaire the next, that’s kind of silly.

POTTRUCK’S PROSAIC PICKS
How an officer of a leading online broker selects stocks offers a few surprises

You would think that as one of the officers of an online brokerage firm, David S. Pottruck, president and co-chief executive officer of Charles Schwab & Co. Inc., would have more of his own personal holdings in Internet stocks. After all, the firm controls roughly 30% of all online trading volume and its Website is integral to the way it
conducts business.

But in keeping with Schwab’s cautious approach to the market-a philosophy it endlessly preaches to its customers-Pottruck says his major investments, outside of company stock, are placed in index funds and blue-chip companies providing the framework for the Internet.

“I have an enormous amount of money in index funds,” says Pottruck. “The core of all my investment holdings are in index funds. That’s probably more than 50% of my personal investments outside of Schwab. That guarantees me that I’m going to match the market. You don’t have to beat the market to do very, very well.”

As for Internet pure plays? Forget about it. “I don’t own a single e-commerce company stock,” says Pottruck. “What I do own are stocks like Cisco Systems (Nasdaq: CSCO), and IBM (NYSE: IBM), and Lucent Technologies (NYSE: LU), and Intel (Nasdaq: INTC) and Microsoft (Nasdaq: MSFT).”

His reasoning is simple: these companies are providing the technology that makes the Internet work. So regardless of which e-commerce firm winds up on top, they’ll also be along for

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