Joe Ricketts Discusses Trade and Deregulation

custodian uh. Ricketts is an entrepreneur who has built a business over the course of fifty years and is extremely knowledgeable about what it's like to go through all the growing pains. Ultimately, he the company goes public in ninety seven and has been wildly successful. About a decade ago, Ricketts and his family purchased the Chicago Cubs. We talked about that. We talk about politics, We talk about policy. We talked about all sorts of really really interesting things.

If you are at all intis did in go down the list? Online trading, entrepreneurship, building a business, taking chances, embracing risk. I could go on and on, but rather than me, Babel, why don't I just say my conversation with Joe Ricketts this is Masters in Business with Barry Ridholts on Bloomberg Radio. My special guest this week is

Joe Ricketts. He is the founder and former CEO of TD Ameritrade, one of the largest retail custodians in America, man with what is it about one point three trillion in assets under custodian ship. He bought the Chicago Cubs in two thousand and nine, and a few years later the team won their first World Series in a hundred and eight years. Joe Ricketts, Welcome to Bloomberg. Thanks very, It's fun to be here. So I was looking forward

to having this conversation for a number of reasons. But let's go back to the beginning and start with your career year. You were a credit reporter at Dunnan brad Street. That seems so out of character to everything I know about you. Well, it was critically important to the decisions that governed my direction in life. Um, I really didn't know what I wanted to do for a living, and I had already started a family, so I had to

come up with some direction pretty quickly. The time was going by and I you were in college when you already had your first couple of kids, and it's like, yeah, I bet it's not making some money, that's right. And uh, So I took this job with Dunner brad Street where I went out to all the small towns in southeast

Nebraska and southwest Iowa to call on the business. So I drive into town and I just go one business after another with the credit report that I had from the previous year and talked to them about updating it. And I got to meet a lot of interesting people, and I got to meet a lot of people that were really making our country go. And the thing that stunned me, or really kind of light that went off when I was in college, I had a professor of social sciences tell us we were such a great country

because of our natural resources. And after I got out and into the business world calling on these merchants, I understood the wealth of this country came out of the

brains of these people. They took money out of their own pocket, ideas out of their own heads, and they started a business of shoe store or pharmacy or whatever, and they hired people, and they had to satisfy their customers, and so working to satisfy your customer at the same time, being able to create wealth was a wonderful idea for me. So I said, that's what I want to do. I

want to have my own business. So you go from Dunham Bradstreet to Dean Winter as a stockbroker in and then the ideas start to just date in your in your head. How did Dean Winter lead to first Omaha in ninety seven years later? Well, Dean Winter was a commission job. All the brokers really in the country worked on commissions and I didn't have any capital to start my own business. So this was as close having my own business as I could get. And we just happened

to become registered. I say we my the other guys in the training class at a time when a market was at the top and it went down for the next five years, which was a big surprise because it hadn't done that for a long long time. The DW. Kisses a thousand by down correct And so how did that impact you as a as a broker? It was very difficult to make a living as a broker. We had to work very hard all the time. But we were building a client book that would help us in

the future. Just about the time when we thought that client book was going to help us make the type of income that we wanted. The idea of negotiated commissions came into the marketplace the big boom. So the restrictions, the regulations go away, are d deregulated, and you could pretty much charge much, much less than before. So I realized if I called my customer and talked to him about a good idea to invest in, the second conversation was how much are you going to charge? And how

little do they want to pay? So we were gonna so it appeared though, as though we were going to have to have twice as much in the way of a client book and worked twice as hard just to be able to make the same living. So my friend, the guy that became a partner with me, Bob Perlman, and I talked about why don't we join him. I gotta tell you, Barry, we had no idea how to start a brokerage firm. We really, we didn't have any idea whatsoever, except there were two ideas that that floated

through our minds. Number one was we thought there was a large enough more market of people that wanted to buy or sell a stock without any other conversation. They just wanted to We don't want your recommendation. We don't care what your your best of list is. Just execute the trade as cheaply as possible. That's correct. And there was a market, we didn't know how big, but we thought there was. And and the cost of of trading pre deregulation was a couple hundred bucks. A couple hundred

bucks versus twenty five that's really huge, traumatic traumatic. The other idea that was important and that proved to be correct, was that after the Second World War we had the g I Bill and a lot of men and women came back from the war used the g I bi able to become engineers, pharmacists, And these people were educated well enough to be able to do their own financial planning and be able to make their own decisions, and they were making a nice enough living that there's a

little investable cash on this correct. So the market turned out to be quite huge. We we just had to find a way to advertise into that market so that we could tell them succinctly what we were doing and make them want to respond to us. So how did first Omaha become eventually a merror trade and then Tedium mer Trade. We UH. It's really a long story, but we thought we would be a local business, and we found out that we could not exist as a local business.

So we advertised in the Midwest edition of the Wall Street Journal. There was a favorite spot on the inside of the back page in those times where all the discount brokers advertising, so we advertised in UH that paper with an eight hundred number. Now, something that was unique to us was that Omaha was the location of Strategic Care Command. The federal government, the Air Force pay Northwestern Bill Telephone Company to put in a sophisticated communications system

in case there was a hot war. Well obviously there wasn't, so this communication system was not used. So the phone company dropped their rates on what was then a brand new idea eight hundred telephone numbers where the caller did not pay for the telephone call. And so our telephone rates for UH interstate calls long distance calls were anywhere from ten to lower than if we'd been in any other location in the country, and that was one of

our major costs. So that that gave us a cost benefit we didn't see when we started as first Omaha, but then we did see after we started advertising in the Midwest edition of the paper. Uh, that was so successful, we went to the national edition and we attracted customers from all over, So then we really kind of changed the name to First National. So so you're marketing to

the entire world, or at least the entire country. Where you're located is irrelevant as long as it's nationwide and you're lookating in a place that made your cost structure cheaper than competitors. That was very fortuitous, that is correct, And the problem that we had to overcome was that people were not used to dealing with a broker that they couldn't see touch and field. So they're used walking

into an office and meeting a person. So they had to become comfortable with the systems that they were using in order for them to um really do a lot of business with it. So they would generally start out slowly with small trades and then they become to rely on us, and that we got all our business. And you were one of the first that started to allow people to enter the touch tone keys to execute trades.

It might do if you allow me to say so, very we were the first, very first were so you could I could call all up First National and punching the stock symbol and punching how many shares and the trade would go off automatically. That's correct. That that sounds

pretty innovative. It was very innovative. And Uh, I went out to my customer base to form customer focus groups to ask them how they would enjoy this, and my answer was emphatically no. Really why the customer said, would I use a system based on the TOUCHTNE telephone when I can talk to a broker? And Uh, the answer

is because it's cheaper. Well, they didn't want to use the surface, so I said, I have to make it cheaper to attract their attention and I and so I came out with a unique um way of charging for a customer that threepennies to share. And so that was something that got through immediately, and so people would take the five minutes it took to learn how to use the system. Then what I found out was some people placed their trades so fast it would be impossible to

move your finger that fast. So I called him up and I said, what are you doing and he said, well, we are using a computer to program the touch tone system with the telephone number and with all the information of a trade. So we're sitting at home watching television and seeing the tape, and when the stock price gets close to what we want, we pressed one button. It goes zip. Oh that's unique. The people loved the power of taking care of themselves. They didn't want a broker

once they used the system. They wanted the power of taking everything onto themselves. And really they be the professionals that would call the shots. And so now let's fast forward to a Merritt Trade becomes the first online brokerage. What was that like? Did you have any idea that this new fangled online thing would replace the whole telephone

side of things? Because of the story that I just told you, I knew exactly the first time that we got an order, UM, one of our clerks brought us a printed email message which had by three hundred shares of a blue chip stock at the market, and they said, and of course we had their customer's account number and phone number. And the question to me was should we go ahead and place this because we didn't talk to the customer. I have the touchdown, and I said, yeah,

go ahead, we'll see what happened. So we we executed that order and went back to the customer by email to report the trade. No voice communications, So it was very, very similar to the touchdown aspect of it. And I said, this is even better because they get a confirm with the price, the date, everything, they can print it out, and because it is on a PC, we can deliver more information, we can deliver our own tape, we can deliver research. And I said, this is going to be

much more powerful than the touchdown telephone. Everyone was, that's quite fascinating. Let's talk a little bit about the growth of UM of t D first. This whole time, when you go from phone calls to TOUCHDOWNE to UH to online trading, you're competing with Charles Schwab, which was one of the biggest UM discount brokers at the time. What was that like. Did you end up ever having any sort of relationship with them? Well, him, Zuck Schwab as a friend of mine today, but at the time we

were we were competitors. He had the advantage of having California as his customer base, and I think at the time that was the night California by itself was the ninth largest economy in the world. UH in Nebraska, we had about a million and a half people, I mean a huge, huge difference. So I had to go national, whereas he could really start a local I heard about.

Although we started in ve I first heard about this West Coast discount broker called Schwab in v seven, So he started, you know, after we got started, but I really didn't know he existed. The ones I did know existed advertised on the inside page of the Wall Street Journal, and they were from New York, and then one was from Chicago. So there was only a couple of people in the business when we got started. Now a couple of years later, very a few years later, we had

four competitors. Everybody thought this was simple and easy. It's not. And of course everybody found out that it's not simple and easy, and so competition effort a period of time allowed us and others to buy out our competitors. So today, you know, there's really only three or four brokerage in this Lots of consolidation and that was a lot of fun to go through that. In that consolidation phase, we

ran across the company in Manhattan called Offhauser. The I really described in a lot of detail in the book that that was really attractive, and they were advertising doing trades online. Nobody had ever heard of online, nobody knew the internet, nobody knew what this was all about. This is around what year? This is uh, you know seven? Okay, so still a o L is around. But the Internet isn't the Internet yet. Yeah, that's correct. It hadn't evolved

to the point where we are today. So um. We talked to them about selling, and he gave us a price, which at the time I thought was incredibly high, and but I brought myself to really say, Okay, I'll pay it just so I could understand the technology. So you acquired them, and what's what's an incredibly high price? Seven and a half million dollars sounds I bet that it turns out to be a fantastic r o y thirty years later, within two years. Incredible. We we really didn't

have any understanding. But within a very short period of time, the off Houser folks realized that they had put the price too low, and I had paid a bargain basement price. But the whole industry made fun of us on the day of the trade because they said we were stupid, and that was way too high, as six months later they got it and they understood what happened. So we put the economies of scale in place to be able to increase our profits dramatically. Turned out to be a

wonderful thing for us to do. We found out that the technology that off Houser had really wasn't what I understood them to have, and it was more like smoking mirrors. So the customer could use their computer at home to send the trade, but then it printed out at off Houser and they had to have a clerk tear it off and put it back in to go the exchange. It didn't so they didn't have we call those APIs today.

There was no application program interface that would automate that, so we had to build all of that, which is good because we learned the hard way, made a lot of mistakes, a lot of software didn't work. Throw it away, you start all over and do it again. But by the time we got all done, a customer could sit at home, on their keypad of their own computer, place

a trade and get a report within seconds. So full online trading for real full online trading, and then the exchanges and the over the counter market developed systems of receiving those orders electronically, automatically executing them and reporting back. So it turned out over a period of time and huge investments on the part of everybody in the industry to bring this type of service to the customer, which is absolutely wonderful. So you guys were cutting edge with TOUCHDOWNE,

you're cutting edge with online. You very aggressively roll out um a pretty big advertising campaign. What was that like and what were the results? Well, when we started, it was really kind of anxious. It was unsettling until we until we really did it. I was going to take our advertising budget I think from million dollars a year up to a hundred million dollars and by the way, million dollars for relatively small company way back when that's a big chunk of change. It was a big chunk

of change. So we attracted advertising firms that were the top advertising firms in the country. So to the size of the million dollar Yeah, that's correct, and I think there was seven or nine of them. Um and UM. I said, I've got to cut through the crowd, guys, We've got to do something new and different. And it seems to me humor is the way to go, and they said, no, that's wrong. People don't think of their money is funny. It's not light at all, and you're

just not going to be successful. So they all gave me ads that were dull and boring, just like a bank, and except Ogilvy, Ogilvy. Ogilvy dared to come up with something new and different. And it was a person on the street that said they bought a particular stock, like General Motors for bucks well, General Motors selling for fifty, so that there was the play on the commission as well as on the stock. And then they giggled. They were so happy that they would be able to buy

a stock at such a low price. That those ads really set us off in a different direction. But the ad that really made us was an ad with an office boy. His actor name is Michael Maron. If I remember back then, and uh, he instructs his boss on how to place the trade online. I have a very vivid recollection of that add. It stayed with me. It's twenty years ago. There was more. Oh yeah, it's iconic. And he took that ad took over the whole industry.

And he made a comment in that ad, let's light this candle and that became a standard quotation in the in the securities industry. But that got us a lot of attention. So using humor to get across the idea that we had a low cost with good executions was something that really permeated the market and really made us grow. Any other ads from that era, this is pre two thousand dot com era, anything else really stand out from you?

Those were the two we We did a number of other commercials that had humor in them, playing off of certain things in the culture, but those were the two that were the biggest and the best. Let's light this candle I have, I'll find it on YouTube and posted it you can you can see it on my website. The harder you dot work? Okay, we will definitely uh reference that. Um So, the company goes public in was this pre or post t D acquisition? This was pre so? So?

What was the what was the process of I p oing? Like? Well, it was good and bad, okay. I My dream was to build a business that my children could take over and continue to build, assuming they were interested in online brokerage. Correct, And we had my wife and I had four kids. I thought, you know, one of them is probably gonna want to do this, So that was the dream that

I had. But if we went public, that changes. You're you're no longer a private company or a public company, and you're the dynamics of who's going to run it, and all that changes. But I realized that online trading was an inflection point in the history of not only the brokerage business, but in the history of investing for all time. And if I was going to take advantage of it, I was going to have to move and

I and I wasn't. Although we were making a large amount of profits, not enough for me to build the technology and advertise. So that's when I said, I have to spend a hundred million on advertising and a hundred million on technology. And those were guesses, but Verry, they turned out to be low. Let's talk about that tech analogy a bit, because you describe in the book, Um, you describe just a never ending series of challenges in

snaff foods and issues. Technology was simultaneously your your friend but also, um, I want to call it your enemy. But it seemed like you were constantly having to find new ways to work with the technology where it wasn't biting you in the backside. That is correct the whole time. It took a long time for us really come to the conclusion about what we had to do. But let me describe what it was like. When we started in, we placed and we wrote an order on ticket. Our

office lady called in the trade to the exchange. We got the report back on the ticket, and then she would take that copy of the order ticket and write it down in a ledger all the trades that we did that day, and then she would write it down on another piece of paper cardboard for that customer. And they were setting a ban. This is like Christmas carols, like Charles Dickens. So so one went into the You

have two bins. One goes into the company ben and the other goes into the customer bins, so everybody you have duplicates, and everybody well, once our customer files ones our company files, and then we at the end of the month, we'd have to type out the confirmations and the month in statements and send out to customers and hopefully everything reconciled. That's correct. And we found out right quick if we were going to do very many trades, we couldn't do that anymore. So we had to really

get into the computers. The first computer system that we got, uh didn't work very well and and pretty soon our volume really didn't allow us to use it. So we had to think about getting our own computer. So I was one of those people that thought, well, we'll get our computer and we'll be okay, Well, it'll last us forever. Uh. Somebody said, well you need software, and I'd say, what's software. So once we understood what we had to do, David Kellogg was a genius that that put it all together

for us. We fund out pretty soon that we outgrew that although we spent you know, a couple of million dollars huge budget for us at the time, we had to do something new and different. All the way along, we discovered there's really three pieces of technology that we had to have built in order to make the system work when we got to the middle nineteen nineties. The first was our account base and keeping records of all

the trades in our customer accounts. The second was how the customer places their trade from their computer to our system. And then we had to have a piece of middleware which would take that trade, send it to the market, come back and put on our customer account. All that software had never been built before, so you guys had to design that from scratch. We had to design that from scratch, and that's before we started talking about UM account,

performance reporting and billing and reconciliation. That's a giant, gilliant project. That's a giant project. And so this was there wasn't a off the shelf software. You guys were the first ones pushing this phone. There was nothing you could buy. Nobody would tell you know what he would teach you. We had to learn everything the hard way, which meant

we threw a lot away. We threw away a lot of software because we built it and the guys running the software building teams really didn't understand exactly what we wanted. We tried to tell them as best we could, so they did it and we found, well that doesn't work. Here's what you have to change. So it was a trial in thereror method. But at the same time that

it was awfully high in anxiety. It was exhilarating because it was, you know, just like you, you were conquering a new world, and so was a lot of fun from that point of view. But the the the anxiety came from you just really didn't know what your costs were going to be. So we finally got to the point where we knew what our costs were going to be and it was much more of a easier management job. So when did the TD acquisition take place? Well, we

went public and uh, that was yes. And what we had done before and after we were public was by other small companies, by a lot of our competitors who could not afford and did not know how to put in their own clearing operation and their own data processing systems. And um Waterhouse was in Manhattan and was a big competitor, and we had talked to them about merging or buying them. Uh, those talks did not turn out to result in anything happening.

But what did happen with Waterhouse is Toronto. Dominion Bank in Canada bought Waterhouse Securities and as the business continued to grow in market size with everybody having more accounts, we came to understand that size made a difference and so if we could merge or buy a competitor, the better off we were. And Waterhouse was one of those

people that fit into one of our targets. Now it was a big change for us because it would now take the Ricketts family from owning more than toning less than But it was one of those things where we didn't have time to accumulate the cache flow to buy the accounts through advertising. We had to get them all at once. So we merged with the brokerage firm Waterhouse,

which came with the ownership of Toronto Dominion. So now Toronto Dominion Canadian Bank became the largest shareholder of a merrit Trade, So that was really a merger, not a straight up acquisition, and they became the biggest shareholder of Correct Merrior Trade. But now you're a smaller owner, but of a much much bigger pie. That's right. So I had many more dollars but less ownership. So that's late nineties. Now you're running one of the larger online brokerage firms.

What was the experience of the dot com implosion in two thousands, um our volume remained relatively steady. So with the technology that we had put in place, we had gotten to the point where our volume could come down, our revenues could come down, and we can still make a profit because you continue to reduce your costs by adding more and more technology. Correct you describe in the book, some of the really hilarious. I mean it's hilarious in hindsight.

But in the book, you describe all these bugs and snaffoos and issues that keep coming up as you roll out more and more technology, and you're the guy who's saying, no, no, we need more. We have to get our costs down otherwise we're vulnerable to to other discounts from from elsewhere. It was either take the risk and try to do that, or before you ruin the company. So we took the risk and we did it and uh, knock on what it all worked and made us thrive. Uh, let's talk

a little bit about this book. You own the cubs. You're successful businessman. You don't need the headache of writing a book. Why bother sit down and put all the time and effort into writing a book. There's a couple of reasons. First of all, I'm concerned that the number of new businesses getting started is too low relative to our total economy. So I wanted to encourage entrepreneurs to go ahead and start their business, and even though they didn't know all the answers which I point out in

a book, and to let them know it's okay. To make a mistake. It's good to make a mistake because you learn from that mistake and you won't repeat it. When we were starting, I told my people, you know, all we have to do is be right fifty one percent of the time. But as I got more experience, I came to understand, no, you could be right only five percent of the time or some small amount, as long as you get rid of your errors quick. It's

the magnitude of the mistakes, not necessarily the total number. Right. So there's a quote in the book I really like quote. Business was an act of creativity and courage. Other people didn't seem to see it this way, but to me, business was where life came alive. That's true for me. Now, that's that might be unique to an entrepreneur, but a lot of my time I spent alone just running thoughts and ideas through my head and then trying to carry him out. What if I did this, where would it go?

What would happen? And I'd carry it five or six steps into the future and then find a problem and I have come back and we start all over again. That to me was very exhilarating. It's again, like the artist you put something on the paper. If you don't like that particular color or hue, you kind of change it um And then to take it to implementation was

more exhilarating, and to see it work was heaven. Now, a lot of people would not feel those feelings that I just described to you, maybe just an entrepreneur, but it took me back to my childhood days when I saw my dad and all of the people that he worked with at electricians and the plumbers that had their own business. They were their own people. They were their own men that could decide whether they wanted to make their business successful or not by the way they deployed themselves.

And this was a way for me to take different ideas, which was even more exciting because we were plowing a newfield, we were going into the frontier. It was a lot

of fun. So early in the book, you described going with your father who was building houses at the time, and literally, these carpenters have aprons on different nails and different envelopes and they're they're building houses and you and but it was manual, it was so handsaws and and you described the moments, which I thought was really telling about what happens later in t D. You described the moment when the electrics circular saw comes out and everybody

gathers around and they show a test to this, and it's, oh, my god, this is going to be an immense time saver. We'll be able to build things much much more quickly. How did that experience impact the way you saw technology affecting your business. I think the fact that my father knew and understand that it was so important to their work that it made an impression on me. How my father was reacting to this buzz saw. Now, the idea

is really quite simple. It's going to save them time because I saw the carpenters using their hands and arms to saw a piece of wood. Now they could just use this electric implement and cut it right away. Uh. So it was an easy idea for me to really kind of understand. But the appreciation and the happiness of my father is the emotions that really made me stick that idea. In my mind. Didn't really never forget it.

It really it really resonated. So you you describe UM quote technical challenges were my constant companion computers that would backfire with static electricity, UM equipment that constantly needed to be upgraded to keep up with the speed of of real time trading. And this is long before the quants and the algorithms took over trading. This was back in the day when your competitors were phone calls and someone

walking into a brokerage office. What what made the technology such a continual challenge because it had never been done before. You really didn't know what you needed ahead of time. Yeah, you did not know the size of the computer, you did not know the size of the storing capacity, You did not know what the volume of trades were gonna be coming. So you were guessing at a lot of this stuff. And that's why a lot of it didn't work.

But when we did find what it did work, we had the basis to correct it and it was easier going forward. And you write the break through was figuring out how to keep trimming costs by inducing the customers to go the least expensive way. Um, so first it was a phone call, then it was a touchstone, that was email, that it was online. Uh, in hindsight, this looks obvious, right, It's well, that's the hindsight of everything

looks obvious in the rear view mirror. How groundbreaking was the idea we have to steer clients to the least expensive way to execute. Well, when when we started in, everybody thought we were fools. We we talked to the regulators who said, why would you want to do this? Brokerage firms that have been around for a hundred years or going out of business. The market is not good. What makes you think you can be better? I mean, everybody through cold water on us, and uh, you know.

The simple idea was that, well, when the big firm maryor Enter decided to compete with you, they'll just stomp on you. And I said, they can't. They've got too much cost infrastructure that they can't change. Nobody understood that, so we were kind of ridiculed all the way along until we started showing the whole world that we were opening accounts so fast that we had captured the imagination of the customer to want the ease and convenience on the low cost, that we were somebody to contend with.

You mentioned regulators. You've had some battles with the sec over how they supervise and regulate the brokerage firm in the execution. Tell us a bit about those experiences you wrecked in the book. Some of it's kind of amusing. I would not call it a battle so much as trying to bridge the gap of understanding. Um, you seem frustrated in the book that you understood this and you couldn't get these guys in DC to get it. I mean,

they were just very old school. They were very old school, and people really didn't understand that customers wanted to do their own things. So even the regulators had this idea that the brokerage firm had to give research to the customer in order to make the customer, uh, want to make a decision, whereas the customer could buy their own information and do their own thing. So it was really kind of hard to get across now when the regulators came into because the first time in we deserved it.

I'm sure they walked in and said with the idea that they were saying to themselves, these people are so stupid, we we don't they shouldn't be handling customer money. Well, by the way, if that was true, half of finance would be out of the jet. I mean, I'm i exaggerating. It's it's gone. A lot of it is. People have a real specific knowledge in one area and the rest

of the world they're blind to. That's correct. So so they come in and what was that experience like, Uh, the I need to give credit to Tim McReynolds who was our attorney, and he was a young man that had a way, and in his imagination he pulled out an idea of how we should approach the Securities Next Change Commission. First of all, we didn't fight them. It wasn't a battle. We said, you are correct. We were

we were recording option trades incorrectly. That was a violation of regulation which caused our netcap a chain reaction domino effect. So we said everything you say is correct. We didn't know and they said, well you should have. He said, well we know now. They said, okay, instead of shutting you down, we'll give you a penalty. So so this was really a potentially existential crisis. They would have shut

you down. They could have. And their idea, I'm sure when they came in Barry, was we got to shut these people down. They don't know what they're doing. Once we proved to them that we were honest, that we're not chills, that we were doing something that the customer wanted, that the investment of public wanted and that we could change this record keeping system so simply and so easily. They said, well, we'll just give you a fine. How big a fine was that? Um, the dolls were not large.

I can't remember. It was a small amount because we didn't have dollars. But they said, you have to stop advertising. You have to stop. You have to close your office and Lincoln Nebraska in Chicago, Illinois, and um, you cannot advertise for a long time until you get your books and records under control. I had to be out of the office for I think a month. I could not

be around to manage things. So they were giving us penalties that we had to accept in order to stay in business and closed two offices thirty days suspension UM and spend advertising for how I mean you guys were Eventually we could not they did. They said, you cannot start advertising and that was our lifeblood until you get some your books and records on. How long did the process take to get it? That took months? That took maybe two months. Okay, that's I was afraid you canna

say two years, but it didn't. But still that had to be a scary two month period. It was very scary. I think the judge that gave us those penalties, I thought, this is enough for them to close down, that just go away. Really, I think he thought, you know, if they can get through this, they deserved to stay in business.

But we did get through it, and but we came out of that as friends with the regulators because they understood that we were trying to do something good for the industry, which they did not understand when they walked in our door the first time. Quite quite fascinating. My special guest today is Joe Ricketts. He is the founder and former CEO of TD Ameritrade. He is also the owner of the Chicago Cubs, although really it's more accurate to say your family trust is the owner of the Cubs.

My kids on the kids on the Cubs. But that's a nice presence of the kids. You're the one who bought the It was a combination of if I'm doing this off the top of my head, nine million and oh nine, and the right in the middle of the crisis, right right, the kids put up a couple of hundred million dollars, You put up the slight majority, is that right? My kids put up about two and my wife owned them a bunch of money, I think, okay, and everybody

involved obviously got their money from you. So I say, you're the guy who drove the purchase, and I'm the one who created the value that my kids could use. Okay, that's fair. So my wife and I put stock in the names of our kids in the early nineties because I can see it coming gotcha and this way that they would be responsible for the capital gain and not me. So I've been wrong when I'm saying you both the Cubs. Really you teed up the structure that allowed your kids

to buy the cups. That's correct. That's quite interesting, and you talk about that in the book. And I keep getting it wrong. I keep saying, people send to me who you interviewed this week, Joe Ricket see both the Chicago Cubs. So let's talk a little bit about the we'll come back to the Cubs. Let's talk a little bit about the Opportunity Education Foundation and some of the other phil the piece you've been involved with. Tell us a little bit. What what does that foundation do? Well?

I I let me take a step back. I you know, in my early fifties, I've had done nothing but work and I said, well, you know, I'm rich enough now and I can afford to travel. And travel was always one of my great attractions. I had wonderlust and I wanted to go to places like the Serengetti. I wanted to go where there was adventure in my travel. And um, I was my uh, three kids, my two sons and daughter, and I went to climb Kill Him and Jarrow with some friends and really go on a week of safari.

So it was it was two weeks vacation. It was a long period of time. So you have you have four kids and three of them climb kill Himanjaro with you, correct, My my daughter, my son Peter, and my son Todd and I and we were with good friends and their family and so it was a great time. But in climbing Kill Him and jar Oh, we became close to our guys because that's not an easy thing to do. It's it's so when we came off at Kilimanjaro, we

had already developed a bond. So now I'm not driving down the road in the Serengetti and we don't see any animals, and so I'm going to carry a conversation with the guy the driver. I said, what do you do when you are not on Safari? He said, well, I run this school. I started this school. Now I'm quite sure this man cannot read or write, but he's bright, so he he knows how to do the guide stuff. So I'm fascinated that that somebody that was pretty close

to illiterate starts to school. Said why he said, well, I didn't think my kids were getting a good enough education. So I said, how many students do you have? He said I have twenty three. I said do they pay a tuition? He said, oh no, they can't afford it. They're poor. So well, how do you support the school? And he said, I take my check from the Safari company and I put in the bank and I used that money to support the school. Now, Burry, I know

this guy has nothing. I'm impressed by American standards. This guy is a huge hero. So I said, what's the name of your school? He said, it's UHM Sat and it put his name in there. And I and I've gone to a Catholic school all my life, and so I know all the saints and I've never heard of this saint before. I said, who is that saying? He said, oh, that's my name, so he got it halfway. The government finally made him change the name, take his name off

of it. He couldn't call himself a saint because he started a school. But I said, hey, can we We had talked enough about it that I was really fascinated, So can we go see your school when we go back to Russia before we get on the plane. And he said, I'd be happy to have you come. So I said, well, let's go back to camp and talk to the rest of the people on the trip, and they all wanted to go. So we went to see a school. Now, the school was a cement platform, a

concrete brick walls with a tin roof. It's equatorial, so they didn't have to worry about cold, no snow, and of small rainy season. Just yeah, and and there wasn't anything in the room. There were nothing on the walls, There was no books, there was no pencils, there was no paper. There were three volunteer adults that taught the kids A B. C's and poems and things of that sort. So they were working really really hard to give their kids a little bit of an education. So um, I

I said to His name was Shanky Wilson. I said, Shanky, I'll tell you what I'll do. They had electricity, no running water. With the electricity. I'll buy you a TV, and when I go back to the United States, I will send you DVDs of programs that our kids see before they go to school, like Sesame Street and Mr. Rogers and things of that sort. So we did that. Then I went back a later. Now he's got forty seven students and they're all paying it a little bit.

So one had. When he had that TV and the DVD player and showed what happens in America, there was a lot more interest from the neighborhood and that really kind of grew. The next school wanted it. The next school wanted it. So we really started taking on one grade, uh every year, and I went back to America. I

was familiar with making commercials. We hired a studio, I put in a teacher in students, and we filmed teachers giving educational courses math and science and things, so now they can learn how to instruct the kids off of the DVDs became very popular. But when we got to secondary education the ninth grade, this guy, Steve Jobs came along with new ideas of how you use technology. So we said we're going to use that new technology and

in fact, we're gonna up assisting the schools. We're going to build the education programs into the iPad and then we can give the iPads to the schools and the students and they can learn the same way kids in the United States learned. So that's how we got started off on the education system. And how large has that scaled up to be? For primary grades were at about sevent and fifty schools with thousands of students. Fifty schools schools and that's all in Africa. Is that? Yeah, eleven

eleven countries. Three of them are in Asia, India, UH Sri Lanka, and um Uh Catman, Dow and then the rest of them are in the various countries in in Africa. But the Education Department of the Government of Tanzania saw what we were doing and they loved it. So they really kind of have sponsored us to be able to expand the secondary education schools in Tanzania and so that's

what we're concentrating on right now. So we have about UH forty high schools in Tanzania and we had more every year to our system of education and it is changing their life significantly. I can imagine. Now it's worked so well in Africa, I said, we had to try the United States. So I've got two schools in the United States, one in Santa Rosa, California, and the other one in Omaha, Nebraska. How did the school survive the most recent fire up in Santa Rosa. Oh not well.

I mean, you know some of the kids, you know, their homes were burnt. Uh, they had to relocate, they had to be out of school for a long time. The fires never got close to our school, but they certainly did influence the people that we're concerned with our school, both fires last year and this year. So um, it is something that we just had to live with and get on with. And where's the other school? And the other other school is in Omaha, Braska in Bellevue is

located on Bellevue University campus. And we we learned I structured a meach differently, so we learned different lessons. So going forward, as we open more schools in the United States, will concentrating on putting them on university campus because we bring kids out of families who have never gone to college. There nobody in their families gone to college, and I like to go to disadvantaged neighborhoods and the kids then are in high school on campus with college kids and

it doesn't take them too long. This. Yeah, so it's not something foreign to him, and he seems very passionate about this. I'm very passionate about it. It's incredibly good feeling. Should change people's lives for the better. The people in Africa were giving them a chance to live in an environment where they don't have to go into the fields. In the United States, what we're opening up is an

idea to students that don't get this at home. And uh so it's it's really and of course there's large parts of our cities and our country where children need to have the opportunity to be able to get ahead, to take advantage of the American dream, and then our education system. That's what we do. We take the kids that are from a poor neighborhood and say, here's what you can achieve if you get a good education, and we help them all the way through. You have four kids.

I have four kids. One of your sons governor of Nebraska. Correct. Uh The other of your sons is a significant um participant in the r NC. Correct, your daughter is very well known in the Democratic Party. She's a huge supporter of gay rights and has put forward a lot of policies. And Um, I don't know if the fourth kid is all that politically active. Well, he runs the Cubs, so he's he's too busy winning World series to mess around with politics. But that's quite a spread of political thought

from within the Ricketts family. And I've got to say, Barry, I don't think it's much different than most families. You get a lot of every First of all, my wife and I brought our childer up to be independent thinkers, and so I we've said to ourselves several times, we can't be unhappy if they don't agree with us. Uh So, even among the for the three boys that are conservative, they don't agree on the individual aspects of concerns. So there's a lot of disagreement regardless of which party or

what ideology you may want to follow. But we all love each other, we respect each other, and we get along fine. Thanksgivings not too crazy at the Rickett's household. Correct, We we might take a jab at another person for a particular thought or idea, but we don't get into serious talks because it's not going to change anybody's mind. No reason to either preach the choir or waste your breath. Correct, we have been speaking with Joe Ricketts, founder and former

CEO of t D Amritrade. His family is the owner of the Chicago Cubs. If you enjoy this conversation, be sure and come back for the podcast extras, where we keep the tape rolling and continue discussing all things UH online trading related. You can find that at iTunes, Google podcast, Stitcher, Spotify, wherever your finer podcasts are found. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Check out my weekly column on

Bloomberg dot com slash Opinion. Follow me on Twitter at rit Holts. I'm Barry Riholts. You're listening to Masters in Business on Bloomberg Radio. Welcome to the podcast, Joe. Thank you so much for doing this. I've been looking forward to having this conversation with you. UM Full disclosure, my firm UM manages about a billion two and t D is our largest UM holder as a custodian has just under a billion dollars of our assets full. UM, so we are familiar with your company and what it does

UH for for quite a while. UM, there's one or two questions I wanted to get to and then we'll do our speed rounds. I had to ask UM. I didn't get a chance to ask about the institutional business because you started out primarily as a UM retail custonian and brokerage firm. How did the how did the institutional side develop? It took years of developing the market for the individual investor, and the next segment would be to

bring in institutions. These would not be the huge institutions that that we know of, but financial planners that have their own businesses and do the execution and clearing for these firms. And UH, that's just something that really didn't excite me too much. So I brought another people to go down that road. And that's about the time that I retired as UH CEO and became chairman of the board and figured, this is the time in my life when I really kind of deserved to UH do fun things.

I found out the most fun thing to do is work. But anyway, after a while, I UM relentish the chairman position. So I saw a lot of my friends start their own businesses, become very successful, sell them, and one day they're busy and the next day they're not. They turned out to be very unhappy. So I kind of paste myself to do it in pieces. So I was even ready to get off the board when I did. Yes, So I I haven't been on the board for you know, almost ten years, and I've been out of management for

almost twenty years. But I but I still own a large part of the stock. I think I owned seven percent of the stock that's out there. So let's jump to our speed round because I know we have to uh let you go eventually, um go as long as short as you want. With these questions, they're designed to kind of fill in some blanks about about your personality. Tell us the first car you owned, your making model.

It was a student baker really. Oh yeah, it was the nineteen forties and it was a four door, the ugliest car you can I was going to say, they are not pretty cars. They are not pretty cars. But I think we paid all of eighteen dollars to buy that car. Bucks. Yeah, this was this was back in the nine Would you would you be insulted if I told you you overpaid. I don't think so. I don't think so. So what's the most important thing people don't know about Joe Ricketts that I don't know what? That

might be? Kind of an open book, right, very open? Uh? So, Uh, there's really no secrets that I know of that I can say that people don't know about. Everybody knows. I have a website Bear my Soul and and the website is the Harder You Work dot Joe Ricketts dot com Joe Ricketts dot com. Oh, there's a separate work, separate side for the book Joe Ricketts dot com. Um, you mentioned your dad. Who else were early mentors to you in your career? The A lot of the people in

Nebraska City seem to take an interest in me. All of my former employers, uh, the boy Scout leader, Uh, friends of the family, all of those people that I saw doing their own thing, having their own business, having their own interests. All of those people were important to me to let me know that really you determine what your life is by what you do and not what other people are going to be able to help you with. So I learned independence. That's very Midwestern bid Rock values. Well,

I'd like to say they're very United States values. Um. Anyway, I think that formative time seeing all of these successful people, uh, is what really put me off in the direction that I started to go. I didn't know that I wanted to own my own business, and then I did know it, and I didn't have any money. So its a matter of evolution. So who influenced your approach to thinking about investing and trading in brokerage? I I saw an advertisement this is about sixty six of a broker and nice suit,

shiny shoes making a lot of money. Brokers at that time were market was good. Brokers are making a lot of money. Sure that whole post will wear two run up was a great time. And I wanted to make a lot of money, so I was willing to work hard. So I said, I I think I want to go. I learned how to become a broker, So that's what set me off on that line. Let's talk about books. What do you like to read? What do you historical novels?

American historical novels give us some names. Well, I just finished up that book by Brian kill Me called Sam Houston very interesting. There's more to Sam Houston than I ever thought. So I'm going to buy He's got three more books. And Sam Houston claimed to fame was what? But he was the avenger of the Alamo. So he's the father of Texas. He's the one that made Texas what it is. Or the city of Houston his name for him? Is that right? The city of Houston is

named after him. Yeah, very fascinating story when you get into the details. You know, I remember from history the high points, but talking about those details is is a lot of fun. I enjoyed Undaunted Courage immensely. That's that's that's the story of Lewis and Clark. Okay, is that the new book? By not new? It's old. Okay, I'm thinking a different. In fact, the author passed away Undaunted Courage and that you'll have to help me out with the author. I read it a number of years ago.

Let's see what the Google machine says. Undaunted Courage by Stephen Ambrose. Stephen Ambrose wrote a lot of historical novels, and he wrote a lot about the Second World War. I see that band of brothers with him. Okay, my my three boys love those Second World War stories. But I was. I'm I'm more interested in what he wrote about American's history. Uh, The Undounded Courage really kind of led me into studying a lot about the beaver trade and how the West was opened and the characters that

it took um. So my my interest is uh, really historical novels. I get excited about it. Give me one more and then I'm gonna give a recommendation to you. But you probably read it already. I'm at a loss to give you one more, Okay, So I'm gonna ask have you read The Right Brothers by David McCulloch. I have not, but I love David McCullough. Can I tell

you something, Yes, he wrote this book for you. This is about two brothers against everybody telling them how crazy they ought to do with thy do go out Offenial essentially event flight and it's if you like McCullough, it's just a beautiful book. I just read his program The Pioneers, which I finished up maybe about three months ago. I have the book sitting on most night table waiting for my next vacations. So I will get the one about brothers.

You're gonna You're gonna plow right through this, UM, tell us about a time you failed and what you learned from the experience. One of the biggest failures financially that I've had I I came up with a system called on Money where a customer could take their brokerage account, their bank account, and their insurance coverage, put it all into one operation, one financial package, run by the software. And when I would talk to people about that, everybody

said they wanted it. So I put a huge amount of money hundred million, and UM it never did take off, like a Merrill Lynch wrap account. They all the big brokerage. Today everybody uses it. But at the time I had to pull uh information from different companies and they were not too excited about letting me have their information. And I presented it too independent. Um, customers, really you need a financial planner. So there were two mistakes I made with it. But the thing that is stuck with me

is I went too far. I was so convinced I was right that I pushed it two hundred million, and I should have stopped at about twenty or thirty. So I learned there. Once you know that you've got something that's not working, pull the plug that that that's always good advice. You mentioned killing and jar O. What do you do for fun when you're not working? My fun is my work. I have never found anything that was more fun for me to do than work except ride

a motorcycle. And I came across that by accident. Are you still Are you still riding about? I've got a motorcycle with four ols now because my balance isn't as good as it used to be when I was younger. You're just not going fast enough. So so I'm a little jealous because I like to ride, and I won't ride around here because it's so dangerous and so much

traffic where you are that's made for motorcycles. You can get on a country road two lane highway and you can see for miles and there's not another Are you a Harley guy? You a BMW guy? I'm both. I have a BMW and I have a Harley Harley. I kind of ride in town. The BMW I take on my long trip right, it's their delightful cruises there. Um, let's talk about the industry. What are you most optimistic and most pessimistic about in the world of online trading

and brokerage? Well, I'm I'm really not pessimistic about the world of online brokerage. I think the accumulation of data and the accumulation of information on the individual will kind of leave financial planners to be able to custom make

software programs of financial planning for the individual customer. And I think that's that's very exciting, And the software is all moving that direction pro and all the other similar software heading in that direction, so the software will be continued to be enhanced and bring more benefits to the individual consumer. Are you at all concerned about free, free trading, free et f s, free everything. I do have a

little hesitation. We don't want buying a stock to become similar to, uh, placing a bet on a football game, and that's a risk. I think that's real that we have to be careful of. The reality is the difference between absolutely free and paying five dollars. There's there's no

change in utility. It's psychological friction that forces people to think about So if if we can keep people's buying a stocks for free for no commissions off into a professional area so that it doesn't become a loss Vegas gambling space, we're fine, But we don't know that yet. That's got to play out. And our final two questions, Um, what sort of advice would you give to a recent college graduate beginning their career that was interested in pursuing

a career in finance. The first thing I do is say, go off by yourself onto the mountain for a couple of days and just be by yourself and think about what you want to do in your heart, in your psyche. What is the thing that makes your life worthwhile. Then after you've come to that answer, see how you can fit it into a money making aspects to allow you to live the lifestyle that you want. And it may

not be financed. People may say, well, I want finance because I can make good wages, but they may find out, you know, I'm gonna play the piano. They'll be happier playing the piano, even though they probably won't make as much money. Interesting, And what do you know about the world of trading and invest today that you wish you knew fifty years ago when you were first getting started. I am quite happy with finding a good company and buying it. That's the Graham and Dot idea, and not

trading all the time. Um, the thing that you have to be careful with with Graham and dot is is don't become an amor don't become emotionally involved with your investment or the company that you're looking at. Uh. Sometimes you you'll find another company that you think might do better, and you you really got to say, oh, I need to sell this because you've got a limited amount of money, no matter how much you have, and put it over someplace else. So you got to really cause yourself to

think deeply. Quite quite interesting, we have been speaking with Joe Ricketts. He is the founder of t D, a merrit trade and the author of a new book, The Heart of That You Work, The Luckier You Get and an entrepreneur's memoir. If you enjoy this conversation, well look Up an Inch or Down an Inch on Apple iTunes and you could see any of the nearly three hundred such conversations we've had over the past five years. We love your comments, feedback and suggestions right to us at

m IB podcast at Bloomberg dot net. Since you're already looking Up an Inch or Down an Inch and Apple iTunes, please give us a review. UH. You can check out my daily column at rit Halts dot com. You can sign up there for our daily reads. Check out my weekly column on Bloomberg dot com. Follow me on Twitter at rit Halts. I would be remiss if I did not thank the crack staff that helps put these conversations together each week. Carolin O'Brien is my audio engineer. Michael

Boyle is my producer. Attica val Broun is our project manager. Michael Batnick is my head of research. I'm Barry Rit Halts. You've been listening to Masters in Business on Bloomberg Radio