The CEO of a $1.3 trillion brokerage warns buyers to beware weed stocks, and explains how the market's recent turbulence is good for business

TD Ameritrade

TD Ameritrade CEO Tim Hockey

• Shares of cannabis companies have been among the most volatile in the stock market this year.
• Tim Hockey, the CEO of TD Ameritrade, warns that you shouldn't rush to buy.
• In an exclusive interview with Business Insider after the company's earnings announcement, Hockey discussed why he thinks buyers should beware weed stocks, the differences between this boom and the bitcoin bubble, and how volatility is driving his company's growth.

Where weed stocks are concerned, what goes up quickly must come down - and fast, according to TD Ameritrade CEO Tim Hockey.

The $1.3 trillion brokerage has warned its clients about the dangers of investing in the red-hot industry, which picked up steam ahead of Canada's legalization of marijuana on Oct. 17.

The brokerage is cautioning against painful losses that may lie ahead for traders. At the same time, it acknowledges that - broadly speaking - volatility means more people are trading, and that's good for its bottom line. On Tuesday, the company reported quarterly earnings that topped Wall Street's expectations.

Business Insider spoke to Hockey after his earnings call about his outlook for market volatility and his advice for anyone interested in weed stocks.

This interview was edited for length and clarity.

Business Insider: In Q3, average trades per day rose 50% year-over-year. At the same time, Q3 was pretty quiet in terms of market volatility. So what drove those volumes?

Hockey: A broad-based increase with equities in particular, as opposed to it being VIX-driven. What we're seeing now in October is some of these much more volatility-driven numbers.

My own view is that we investors and traders have become more complacent with the VIX in the 12-13 level, when the long-term average of VIX is more like 20. And so my sense is that you get more up-and-down days like today [Tuesday] over the next little while, which feels to me like they are more appropriate after this 10-year bull run. We are long in the cycle.

I think you'll see VIX normalizing. There's usually reversion to the mean over such a long period of time.

With these new 11 million-plus accounts in the marketplace, I think you'll start seeing a higher level of trading generally as the VIX goes up.

BI: That's why it was curious to me that there was such strong growth last quarter when the VIX was in the teens.

Hockey: [Growth was driven by] more consumers and more clients entering the space. As I said on the call, our new accounts and our larger new accounts actually were up almost 50% in 2018 over 2017. That's a pretty healthy growth rate, even with relatively low vol.

BI: What's the interest you're seeing from millennials and what are they buying?

Hockey: Millennials are no different from other people in that they tend to buy what they know, what they like, and what they're interested in. That generally means tech. That clearly is a large driver of our space.

A good portion of our clients are in the under-35 set. Under 40 years old, you've got almost 50% of our clients that are new.

Crypto tailed off in terms of an interest level, but cannabis-related stocks were about 6% of our trades in the quarter. That's related mostly to the just-passed legalization of cannabis and the companies in Canada [listing on US exchanges, including Aurora Cannabis].

BI: Many people are comparing the cannabis boom to what happened with bitcoin, and I was wondering if you had any pointers or advise for people who want to jump on this bandwagon? What should they keep in mind?

Hockey: People should always be afraid of bubbles. What goes up must come down, and if it goes up too fast, it tends to come down just as fast. We've seen it time and time again.

I think there are some differences this time around between cannabis and crypto. Like it or not, there are very real use cases for cannabis and they're still being figured out on the crypto side. [Cannabis has] a market that is ready-made and legalized whereas with crypto, it was very difficult to figure out what that market might be.

The general advice would be caveat emptor: buyer beware. Don't just buy things on momentum, [thinking that] what goes up must continue to go up forever. That's clearly not the case, as many people that bought crypto in December of last year now know.

BI: Another area that's picking up a lot - and perhaps is not as boomy as cannabis or bitcoin - is ESG investing, especially with younger investors. For someone who's interested in investing consciously, how do they start and what kind of tools do you have for them?

Hockey: Clearly it's a growing trend although it's been growing over the last 20 years quite slowly.

There are significant products that are available in the marketplace. It used to be, right or wrong, that ESG investing was seen as a limiting factor and therefore you had to trade off returns for value.

We have just launched a set of ESG portfolios in our central portfolio, which is essentially our robo. And of course, there are many ESG instruments available in our ETF market center or available through our platform.

BI: And like you alluded to, ESG is no longer seen as a limiting factor but as something that can be a profitable add-on.

Hockey: Yes. As an open-architecture platform, our view is to give advice and education and tools so people can make their own choices on how they wish to invest. The good news is that underlying companies are seeing the virtue in aligning their own activities with ESG principles, and as a result, that's getting a broader set of investment options available to get decent returns for clients.