In short: Owns, hasn't lightened up — "I own Schwab because they keep growing"; one of the more interesting plays in the bank complex because it takes little credit risk. Its risk is the investment portfolio: restructuring the bond book could pick up "a point in yield" that would "drop right down to the bottom line."
Schwab is a brokerage that also runs a large bank holding customers' cash. Whalen likes it because it keeps growing and makes very few risky loans, so it has little credit risk in a period when he expects defaults to rise. Its weak spot is the pile of low-yield bonds it bought during COVID.
He thinks Schwab could sell and replace some of those bonds to earn about one percentage point more in yield, and that extra income would go straight to profit. Management is paying better attention to that portfolio, but hasn't fully fixed it.
25:08" So I have taken profits in some of my more cyclical positions over the past couple of months, [snorts] but that's it. I am trying to set the portfolio up for a period where there may not be a very strong trend in these markets. You want to own quality. I own Schwab because they keep growing. I think it's one of the more interesting plays in the bank complex because they don't take a lot of credit risk.
In short: Harrington's final trade. "Schwab trades at 14 times earnings, has 20% plus earnings growth ahead. It's the kind of stock that you can literally hold forever in your portfolio."
In short: The show's central disagreement. Worthington: "we like Charles Schwab a lot. We're recommending with a buy" — even if cash gets optimized, clients can already "click a button" themselves, and "firms like Schwab don't have to necessarily open up to agents and allow them to maximize the optimization of that cash"; get "90% or 95% of it right" and you beat the competition. Eisman's objection: "this is a great company whose most of its revenue is from the idea that its customers aren't maximizing their own benefits… The business model is dependent upon basically the customer being lazy. And it just bothers me… I just think that that's not an equilibrium long-term." Worthington's tell on why it persists: asked whether polled customers would say they're unhappy — "I don't think the customers know." "Correct… That's the problem."
Schwab makes most of its profit on something customers rarely think about. Money sitting uninvested in your brokerage account isn't idle for the broker — it is automatically swept into a bank or money-market vehicle, where Schwab earns the interest and passes you a much smaller slice. That is what the analysts call lazy cash: cash the owner never bothers to optimise. Worthington calls it plainly "the most lucrative part of the business."
Ken Worthington rates the stock a Buy, and his defense has three legs. Customers who care can already move the money themselves with a click, so the profit isn't hidden from anyone who looks. Schwab controls the door — it does not have to let outside AI agents plug in and sweep the cash to the best rate. And regulators are unlikely to permit a world where money stampedes between banks over five basis points, because "the financial system isn't designed around that level of optimization" — that is a description of a bank run.
Eisman's objection is not about the numbers, it is about the shape of the business: "this is a great company whose most of its revenue is from the idea that its customers aren't maximizing their own benefits… The business model is dependent upon basically the customer being lazy… I just think that that's not an equilibrium long-term." The exchange that follows is the honest one — asked whether polled customers would say they're unhappy, both agree the customers simply don't know. A profit stream that survives on the customer not knowing is exactly the kind cheap technology tends to compete away eventually; the argument is only about when.
The historical evidence cuts both ways. When rates jumped 500 basis points in 2022, alert customers moved cash out and "poof, the net interest income disappears and there's nothing the company can do about it." But a floor of working-capital cash never left. Today's agents can't be trusted with the job yet — by JP Morgan's internal studies they are "wrong the majority of the time" — so the threat is real but not imminent.
11:08to come in? Will Schwab and LPL have their own agents that optimize cash and make it a service that they charge for? So, my problem with Schwab and we were at Oppenheimer together, we covered it together. So, that's a long time ago, but what doesn't hit me right is that this is a great company whose most of its revenue is from the idea that its customers aren't maximizing their own benefits.
In short: The completed-migration example: Schwab moved its headquarters from San Francisco to the Dallas area in 2021 — an HQ relocation, not just a satellite office, in the same tax arbitrage that draws the banks (no corporate income tax versus California's 10.8% bank rate).
In short: A new record high this week. Harrington: "the thing about Schwab that I think is interesting is it's trading at 14.5 times earnings. The earnings growth is tremendous, and it's up a lot — but it's not up as much as many of the financial services companies and the big banks, which surprises me. So I think you've got an opportunity to get in here at a decent valuation." Her second argument is the operating environment: with equity prices where they are and volumes and volatility what they are, "you'd think the shares would have performed better. So get in while you can." Context: financials are going for a tenth straight week of gains, the longest streak since at least 1989.
Schwab is the big retail brokerage, and it hit a record high in a week when financials went for their tenth straight weekly gain — the longest run since at least 1989. Jenny Harrington's argument is relative value: it trades at 14.5 times earnings with strong earnings growth, and it has risen less than most other financial services companies and big banks, which surprises her.
It should be doing better still, she notes, because Schwab makes money from trading volume and from client cash — and volumes, volatility and equity prices are all elevated right now. "So get in while you can."
In short: Baron (First Principles ETF): named as a top-five position alongside SpaceX, Tesla, MSCI and Hyatt in a portfolio whose "top 10 holdings represented 72.7% of net assets." The stated criterion rather than a company write-up: all five "have… significant competitive advantages due to strong brand awareness, technologically superior industry expertise, or exclusive data that is integral to their operations," businesses that "cannot be easily duplicated and have large market opportunities to penetrate further." Included for completeness — the letter excerpt is holdings commentary, not a thesis.
Schwab is the American brokerage and custody business where millions of investors and thousands of advisers hold their accounts. Baron lists it among its top five positions, in a very concentrated fund where the ten largest holdings are nearly three-quarters of assets.
The published rationale is generic rather than specific: these are businesses with strong brands, deep technical expertise or proprietary data that cannot easily be copied, and with large markets still to penetrate. For Schwab the relevant asset is the platform itself — once an adviser's clients are custodied somewhere, moving them is painful — which is why it keeps gathering assets year after year.
Full passage: premium transcript (PDF).
In short: Q2 net revenue +21% Y/Y to $7.1B ($0.2B beat) and adj EPS +42% to $1.62 ($0.07 beat); expenses $3.40B vs a $3.38B consensus, with the expense outlook raised alongside revenue. The market is treating a volatility-fuelled quarter as cyclical earnings it won't pay a higher multiple for. Clients traded relentlessly: record 12 million daily average trades (+57% Y/Y) pushed trading revenue to $1.2B (+28%); Wurster said volume runs 3.5x heavier on down days, with clients making smaller, more frequent buys rather than big directional bets, and June's SpaceX IPO produced one of the busiest days in the firm's 55-year history. Inflows were just as strong but leaned on borrowing — core net new assets +49% to $119.8B (record June haul of $62.7B despite tax-season outflows), total client assets +22% to $13.08 trillion, 1.4 million new brokerage accounts, and margin loan balances up 30% in a single quarter to $165.1B (clients borrowing from Schwab to buy more stock, which earns Schwab interest but unwinds fast when markets drop). FY26 revenue-growth guide lifted to 17.5%–18.5% (from 14%–15%) and expense growth to 9.5%–10.5% (from 8.5%–9.5%), ~300 bps of the latter tied directly to trading volumes; adj pretax margin 54.3% vs 50.1% a year ago. Q3 shows whether the margin gains survive cooler volumes. (Recap, not a stance call.)
Schwab is the brokerage where millions of Americans hold their investment accounts. It earns from trading activity, from interest on client cash, and from lending clients money to buy more stock ("margin loans"). Volatile markets are good for all three, and this quarter was extraordinary: a record 12 million trades a day, up 57%; nearly $120 billion of new client money; total client assets of $13.08 trillion. June's SpaceX IPO caused one of the busiest days in the firm's 55-year history.
Two things temper it. First, margin loans jumped 30% in a single quarter to $165 billion — that is clients borrowing to buy more shares, which is lucrative for Schwab on the way up and unwinds violently when markets fall. Second, the market clearly views these earnings as a temporary product of volatility rather than a new baseline, which is why it won't pay a higher multiple for them even after a 42% jump in profit. Schwab raised its revenue forecast sharply, but also its expense forecast — a chunk of which is directly tied to trading volumes that may not persist. The next quarter shows whether the fatter margins survive calmer markets. A recap, not a call.
In short: The comparator in the IBKR margin table — "Schwab keeps 48 cents" of every dollar against IBKR's 77 — and in the integration point: "Schwab took five years just to absorb TD Ameritrade." No stance.
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