I Am Charles Schwartz Show: Investing Through Volatility

Episode Release Date: May 22, 2025
Host: Charles Schwartz
Guest: Scott S. Cott

Introduction

In the episode titled "Investing Through Volatility," host Charles Schwartz welcomes Scott S. Cott, CEO of tastytrade and co-founder of thinkorswim, to discuss his unique investment philosophies and entrepreneurial journey. Scott delves into his contrarian views on popular investment avenues like cryptocurrency and gold, emphasizing the importance of understanding market psychology and leveraging option volatility to transform market fears into profitable opportunities.

Guest Background and Entrepreneurial Journey

[02:07] Scott S. Cott:
Scott shares his extensive experience in the financial markets, beginning his career on the trading floor of the Chicago Board Options Exchange (CBOE) in 1986. He co-founded thinkorswim, a pioneering brokerage firm specializing in derivatives, which was later sold to TD Ameritrade and became part of Charles Schwab. A decade ago, Scott launched tastytrade, another innovative online brokerage firm aimed at making trading more accessible and efficient.

[20:46] Scott S. Cott:
Reflecting on his entrepreneurial successes, Scott emphasizes the collective effort behind building successful companies. “It's always a 'we,' not a 'me.'” He recounts the rigorous efforts and strategic pivots that led thinkorswim and tastytrade to become industry leaders, highlighting the importance of passion, teamwork, and adaptability in overcoming challenges.

Understanding Market Volatility

[04:16] Scott S. Cott:
Scott addresses the unprecedented market volatility experienced in recent times, attributing it to self-induced factors such as political decisions on tariffs. He underscores the necessity for young investors to engage with the markets early, stating, “If somebody's just starting their career and they're in their 20s... you need to have exposure to the market.”

[33:45] Scott S. Cott:
Explaining his strategy during high volatility, Scott compares selling puts to offering flood insurance, taking advantage of elevated option premiums. “I'm selling somebody else insurance,” he explains, highlighting his approach to generating income while positioning himself to purchase quality stocks at lower prices.

Investment Strategies in a Volatile Market

Options Over Traditional Investments
Scott advocates for a mathematics-driven, probability-based approach to options trading over traditional investments like cryptocurrency and gold. He emphasizes trading small and often, leveraging spreads to manage risk effectively. “Trade small, trade often, but small is the key,” Scott advises.

Cryptocurrency Skepticism
Despite the hype surrounding cryptocurrencies, Scott remains skeptical about their long-term viability as a replacement for fiat currencies. “I don't see crypto as being anything other than speculation and a tradable asset,” he asserts, cautioning investors to approach crypto with a clear understanding of its speculative nature.

Gold: More Speculation Than Security
Similarly, Scott questions the efficacy of gold as a stable investment. Recounting his unsuccessful venture into a gold mine in Mali, he remarks, “If gold goes to 3500, we're going to make so much money off of this,” illustrating his skepticism towards gold’s role as a reliable store of value.

[37:06] Charles Schwartz:
Charles reinforces the importance of understanding risk, stating, “If I'm freaking out on that level, don't do it,” aligning with Scott's philosophy of only investing what one is willing to lose.

Building Successful Trading Platforms

thinkorswim and the Brokerage Revolution
Scott details the inception of thinkorswim, emphasizing its focus on derivatives and the creation of a user-friendly yet sophisticated trading platform. “We built it in a way that was sophisticated enough that former floor traders were using it, but we made it easy enough that retail could do it,” Scott explains. This innovation set the stage for the later success of tastytrade.

Impact on the Industry
Thinkorswim revolutionized online trading by leading the charge in lowering commission rates, effectively making stock trading zero-commission. Scott proudly notes, “We saved the industry, we've saved retail traders billions of dollars in commissions.”

Entrepreneurial Advice: Team Building and Company Culture

Hiring the Right People
Scott emphasizes the critical importance of hiring trustworthy and capable individuals. “Hiring the wrong person is worse than not hiring somebody,” he advises, highlighting the long-term impact of team composition on business success.

Creating a Family-Like Culture
Leading by example, Scott fosters a company culture based on trust, challenge, and autonomy. “If somebody has an argument or a compelling project they want to work on, we'll say, go ahead,” he shares. This approach not only enhances employee performance but also cultivates a supportive and innovative work environment.

Risk Management in Investing and Business

Personal Investment Risk
Scott parallels personal investment strategies with business risk management. He advises setting controlled, manageable investment sizes to avoid emotional distress during market fluctuations. “If you have positions that are too big, you probably have positions that are too big,” he warns.

Business Risk Tolerance
In the business realm, Scott underscores the importance of high risk tolerance and calculated decision-making. He shares, “I could bet everything I have on myself,” stressing the need for internal fortitude and flexibility to navigate business challenges effectively.

The Role of AI in Future Business and Investing

Embracing Technological Advancements
Scott acknowledges the transformative potential of AI in business and investing. “I try to learn something every day,” he states, advocating for continuous learning and adaptation to leverage AI advancements. He believes AI will create new opportunities, despite some jobs becoming obsolete.

Final Advice for Listeners

[51:58] Scott S. Cott:
Scott’s concluding advice focuses on perseverance and proactive engagement with both markets and entrepreneurial ventures. “Survive this,” he urges listeners, emphasizing regular investment contributions and strategic trading as keys to navigating volatile markets. For aspiring entrepreneurs, he advocates for embracing opportunities and learning from every experience, no matter how challenging.

[54:52] Charles Schwartz:
Charles reinforces Scott's message, encouraging listeners to take decisive action and “find your own way,” underscoring the episode’s overarching theme of resilience and strategic thinking in the face of volatility.

Notable Quotes

• Scott S. Cott [04:16]:
  “What we went through in April, we've never seen before. That was an absolutely insane period.”

• Scott S. Cott [10:28]:
  “I'm biased towards ours. I think ours is the best, but it doesn't matter.”

• Scott S. Cott [36:30]:
  “When you cross the street, do you look both ways? Of course, I look both ways. Then you know how to evaluate risk, reward.”

• Scott S. Cott [51:19]:
  “It doesn’t have to be [hard].”

Final Thoughts

Scott S. Cott’s insights offer a blend of seasoned market wisdom and practical entrepreneurial strategies. His emphasis on controlled risk-taking, continuous education, and team-centric leadership provides valuable guidance for investors and business owners alike navigating today’s unpredictable economic landscape. By transforming market volatility into strategic opportunities and fostering a resilient company culture, Scott exemplifies the principles of sustainable wealth building and business success.

For more insights and detailed strategies discussed in this episode, visit I Am Charles Schwartz Show.