Fundamental Global Investors: How did Kyle Cerminara meet Joe Moglia?

Early in my career I worked on the buyside as an analyst and portfolio manager at T. Rowe Price. I was in my mid 20s and I was lucky to have analytical responsibility for billions of dollars of assets under management in the financial services sector.

Back in 2001, our investment team was discussing the future of the US brokerage industry. The Internet boom of the 1990s, which sent any company with .com in its name to crazy valuations, had just ended.

The 1990s brought a revolution in retail discount trading, allowing anyone with a computer and a few hundred dollars to open an online brokerage account in minutes and start trading on the Internet.

Back then it was common for investors to argue that firms like Merrill Lynch and Morgan Stanley would put the discount brokers out of business. And their concerns were valid. Others argued that Charles Schwab would be a good long-term holding but some of the smaller discount brokerage firms were not investable.

I thought that Ameritrade was an interesting idea and I wanted to spend time on the idea.

Joe Moglia had just left a senior executive role at Merrill Lynch to take over as the CEO of Ameritrade. I met him for the first time in late 2001 and I immediately believed the company was going to be successful under his leadership. Joe and I spent 3–4 hours together in our first meeting in Baltimore.

I remember him saying there was a huge opportunity to consolidate the online brokerage industry and he didn’t care if he was the last one standing, he would do what was right for shareholders. And that is exactly what Joe did.

I spent exhaustive time learning everything there was to know about Ameritrade and the opportunity to cut costs, grow revenue and consolidate the industry. I spoke to anyone that would talk to me about the company. It became sort of like my obsession.

I pitched Ameritrade to portfolio managers at T. Rowe Price. Over time we became the largest outside shareholder. I began speaking to Joe regularly, sometimes a few times a week. We met regularly in person too.

Over the next several years, Ameritrade merged with a number of peers in the industry, cutting costs and realizing significant synergies. The Ameritrade technology platform scaled exponentially and so did revenue and profits of the company.

We were enthusiastic shareholders and supporters and were aligned with Joe in the view that Ameritrade should consider executing on a merger that would transform the company from a trading business into an asset gathering business focused on servicing investment advisors to generate more recurring revenue.

At the same time, TD Bank CEO Ed Clark spoke regularly on quarterly earnings calls and at industry conferences about TD’s interest in doing something strategic with its wholly owned US brokerage subsidiary, TD Waterhouse.

I met with Joe regularly and updated him on TD Bank’s public comments and suggested that Ameritrade express interest in TD Waterhouse. Eventually, and I think because I annoyed him so much, Joe suggested that I share my views with the Board of Ameritrade.

In early 2005, I had the opportunity to share my views with the Board of Ameritrade on why I felt a TD Waterhouse merger with Ameritrade would be a homerun for Ameritrade shareholders. A few months later, Ameritrade announced that it was merging with TD Waterhouse in what many industry analysts at the time considered one of the most value creating deals in the industry. The stock price skyrocketed.

In 2008, Joe stepped down from the CEO position of TD Ameritrade to become Chairman. Over the next 12 years, the combined TD Ameritrade continued to consolidate the industry with major acquisitions including Scottrade and Thinkorswim culminating in the eventual sale to Charles Schwab in 2020.

In 2012, Joe and I co-founded Fundamental Global (FG) together. We created FG as a long-term partnership to focus on strategic holdings in which we would invest our family capital together. Today, nearly all of the capital is our family capital and a few close friends. I can’t think of a better partner than Joe.