Welcome to the World According to Boer, where we bring top investors, bestselling authors, and business leaders to show you the smartest ways to uncover value in the stock market. I'm your host Jonathan Boer. Today's special guest is Thomas Peterffy, founder and chairman of online brokerage giant Interactive Brokers. Thomas is the epitome of the American dream, arriving from Hungary in 1965 with little money in his pocket and not being able to speak English. He was able to find work as an architectural draftsman, where he learned computer programming. He also took an interest in options, and by 1977 he had saved up enough money to purchase a seat on the American Stock Exchange. In 1993, Mr. Peterffy founded Interactive Brokers, which today has a market capitalization of over $50 billion and where he is by far the largest shareholder. I'm especially excited to have Thomas on the show, as in full disclosure, I personally as well as my clients own shares in Interactive Brokers, and we featured the company in the October 2023 issue of our institutional research service Asset Analysis Focus. Without further ado, Thomas, welcome to the show.
Well, again, thank you for coming on. Before talking about Interactive Brokers, if you don't mind, I'd love to discuss your experience immigrating to America. As I mentioned in the introduction, you came here with no money, little knowledge of English. First, what made you want to come to the US?
Well, I came with no knowledge of English. I wanted to come to the US ever since I saw those little stamps on letters from America with the Statue of Liberty on it. I grew up in a socialist country. Hungary in those days was a socialist country run by a communist government, where people had absolutely no ability to own anything. The state owned all businesses, so nobody really cared. It was not a meritocracy. People did not get any benefit from working hard or having a good idea as to how to make something better, so nobody did. Therefore, the standard of living was incredibly low. People barely had enough food in those days, shortly after I was born at the end of the Second World War. Collectivist governments and collectivist nations do not work; they do not produce an acceptable standard of living. So I always wanted to come to America, where people were free and there was an opportunity to do something, anything that you wanted to do.
And when you came here, what was it like? You get out of the airplane, where did you go?
Well, it just so happens that I had a father here who I didn't know, because he left Hungary when I was two years old. So I looked him up, he helped me a bit, and he gave me a place to sleep. Eventually I got on my two legs and started to look for a job, which I found pretty soon as a draftsman.
Obviously you immigrated here, and I just saw this interesting statistic: roughly 13.3% of the Forbes annual list of the richest Americans are immigrants to this country. To me, that's a staggering percentage, and it's hard to believe there's a coincidence.
No, it's not a coincidence. Many people who came here, not lately but throughout the years ever since the foundation of this country, came because they really had a very strong sense of trying to make it on their own. They came with a purpose. Unfortunately, many Americans today forget that they are the descendants of these people and that they must have inherited some of that drive. That's why this country still does so well, because people here want to do things.
Can you teach that drive?
You don't teach drive. If you have drive, then you learn. But you have to have the drive to begin with, I think.
And you famously in 2012 paid for TV ads asking people to vote Republican because you were afraid of socialism, which I can understand based on your background. Coming to this country, do you still have those fears?
Of course. If you look around today, of course you do, because the country is going more and more left. So of course I have those fears, because unfortunately people do not know that if you don't reward people for merit, then nobody does anything. The country inevitably sinks down to the lowest common denominator in standard of living.
Talking about your big success, you've had many. Interactive Brokers, in researching the interview, I discovered that you were at least partially responsible for one of my favorite movies, Trading Places. Part of the idea came from an interaction with you. Would you mind briefly discussing that?
Yes. Sometime around 1990, I was going to a restaurant with a friend. A bunch of people were sitting around a table, and we sat down with them. I was sitting next to Aaron, and he asked me what I was doing for a living. I explained that I was an options trader on the American Stock Exchange, and I had several people working for me as traders on the exchange. He asked me what the process was, and I explained that we had a computer program running in our office, and the traders would call the office and ask what trades to do. People in the office would read from the computer printout what trades to do. The computer was running all day long printing out these trades, telling them what to do, they did the trades, reported back, and the trades were fed into the computer, and new trades were suggested. He asked where I got these people, and I said really anybody can do it. Melvin was sitting next to him, and Aaron said to me, 'You mean Melvin could do this?' I said, 'Well, sure.' He said, 'No way, $10,000 bet.' In those days, $10,000 was still like maybe $50,000 today. I said sure. So we made the bet. Melvin came into the office, I gave him two or three days of training, and then he went onto the floor. He was a very funny guy, didn't know anything about options, but in two days I basically explained to him how to trade. He went onto the floor, he was a very nice guy, everybody loved him. He was the first black guy on the floor of the stock exchange. He did quite well. He would call into the office and ask for the trades, and the people gave him the trades, and he did the trade. He worked for me for a year. At the end of the year, we got together with Aaron. I told Aaron that Melvin worked for me for a year and did quite well, and he had to give me my $10,000, which he did. Then I heard nothing for a while, and then later I heard rumors that he was making a movie out of this experience. Eventually he came out with the movie Trading Places. So that's how it happened.
Well, thank you. It's one of the best comedies ever, and that's a great story. Just a segue into your current business, Interactive Brokers, which you founded and you're chairman. You've done an amazing job growing Interactive Brokers, especially over the past decade. You've gone from I think 200,000 accounts to over two million.
So is that growth rate sustainable?
It definitely is, because we have a terrific sales team.
Your selling point to potential clients is the best execution possible at the lowest price, having great margin rates, and paying a high interest on cash.
We pay on cash half a percent under Fed funds. Other brokers say, 'Well, we don't pay you interest on the cash, or we pay you half a percent unless you put the cash into a money market fund.' But if you put the cash into a money market fund, that cash is not available to you to buy stock. First you have to bring the cash back from the money market fund into your account, and you get no interest, and then you can use the cash to buy a stock.
I hope you've been enjoying our interview with Thomas Peterffy. To download a copy of Boer Research's initiation report on Interactive Brokers, please visit reports.boervaluegroup.com/ibkr, or you can email us at
[email protected]. Now back to the show. Another selling point is you have a very conservative balance sheet. You have a lot of excess capital, and everything is in government securities or very safe instruments of short duration. A little over a year ago, you had the mini banking crisis in the US. Were you surprised that other firms were not as conservative as you were?
