We think Charles Schwab (SCHW) continues to exhibit a low cost advantage relative to competitors in the financial services industry, with non-interest expenses as a percentage of total client assets of 0.19%, as of the first three quarters of 2012, according to management. This has led to pre-tax profit margins in excess of 30%, which is a multiple of some of the most well established wealth management platforms in the world. We think that this abnormally low expense rate emanates from Schwab's focus on leveraging its information technology infrastructure. In contrast, we think too many of Schwab's rivals rely on more expensive and less efficient human capital to gather assets. The stock continues to trade at a historically low price to book ratio, though that is somewhat offset by a higher forward price to earnings ratio. We think both valuation metrics are somewhat misleading in this historically low interest rate environment and in the event of a rising interest rates, the Company's earnings would likely expand at a very rapid rate, primarily due to money market fund fee waiver relief. So we continue to believe Charles Schwab represents an excellent balance between business quality and valuation.
From Wedgewood Partners' fourth quarter letter.