00:00:06
[bell rings]
00:00:07
I've always wondered myself,
00:00:08
why do we have to hear this every night,
what the stock market is doing.
00:00:12
Seventy record closing highs so far...
00:00:15
[woman] Blasting through a ceiling
In a record-setting IPO.
00:00:18
-Investors who've been riding the wave...
-[narrator] When the market's booming,
00:00:22
we're made to believe
the economy is booming.
00:00:25
And in America, the stock market has been
mostly booming for almost 40 years,
00:00:30
[man] As the stock market goes,
so goes the wealth
00:00:32
and the health of the American economy.
00:00:34
What the market is telling us is that
we are on the road to prosperity.
00:00:38
...a sky-rocketing stock market,
and that benefits everyone.
00:00:41
The stock market has gained
almost three trillion dollars in value
00:00:45
since the election.
00:00:47
[narrator] But if you add up all the goods
and services bought and sold in the US,
00:00:51
the actual economy, that number
isn't growing as quickly as it used to.
00:00:56
Wages have hardly budged in decades
00:00:58
and the average
American family's net worth
00:01:01
still hasn't recovered
from the Great Recession.
00:01:04
So what exactly
is the stock market measuring?
00:01:09
[man] The barometer of America's
prosperity has been the stock exchange.
00:01:12
Look at the Dow, it's currently up by...
00:01:14
The NASDAQ finally hit 5,000.
00:01:16
Investors are salivating...
00:01:17
-Dividends!
-[man] A new kind of gold rush...
00:01:21
We are all watching
this global economic expansion...
00:01:24
We are now in historic territory...
00:01:26
A stock buy-back...
00:01:27
[woman] It's a fundamentally
psychopathic philosophy.
00:01:32
[crowd applauding]
00:01:40
[narrator] To understand
what stock markets are measuring,
00:01:42
it helps to imagine a very simple business
like a lemonade stand.
00:01:46
-Jill is killing it.
-[Jill] But I'm thinking bigger.
00:01:50
I tried to get a loan,
but the bank said it was too risky.
00:01:54
The rich investors weren't buying.
00:01:56
[narrator] Jill has another option.
00:01:58
She can go public,
giving anyone who wants to,
00:02:01
-the chance to invest in her business...
-[clamoring]
00:02:04
...through something called
an initial public offering or IPO.
00:02:07
Investors pay a certain amount,
say a dollar, to own a small part
00:02:11
or share of Jill's business.
00:02:13
Jill sells a bunch of shares.
00:02:15
[Jill] And I grow my lemonade empire!
00:02:17
[narrator] Right, Jill can put that money
towards opening new lemonade stands,
00:02:21
which means more profits.
00:02:24
Jill can put some of those profits
towards developing new products.
00:02:27
She can also give some of that money back
to her investors.
00:02:30
These are called dividends.
00:02:32
She doesn't have to do this,
but it does help get people excited
00:02:36
about her company
and more likely to buy her stock,
00:02:39
like Sam. He was sick on IPO day,
but he thinks...
00:02:43
[Sam] Jill is the smartest girl
in the whole world,
00:02:46
and I know this lemonade stand thing
is gonna be huge.
00:02:50
[narrator] So he offers to buy some shares
from one of the original investors
00:02:54
for twice what she paid for them.
00:02:56
He's thinking...
00:03:01
[narrator]
That's the stock market.
00:03:03
It's people buying and selling tiny pieces
of companies,
00:03:05
based on how much they think
those pieces will be worth in the future.
00:03:09
Except in real life,
00:03:11
it's happening thousands
of times a second, all over the world.
00:03:14
There are stock markets everywhere,
00:03:16
but the New York Stock Exchange
is the big kahuna.
00:03:19
It's been around since 1792,
00:03:21
when 24 stockbrokers put on
their finest short pants and top hats
00:03:25
and got together under a buttonwood tree
on Wall Street in New York City.
00:03:29
Today, it's where shares
in big traditional companies like IBM
00:03:32
and GE are traded.
00:03:34
The NASDAQ
is the cooler younger brother.
00:03:37
It was born in 1971
and doesn't have a physical location.
00:03:40
All the trading happens electronically.
00:03:42
That's where you find tech companies
like Apple and Facebook.
00:03:46
So, in America if you want to know
how the stock market is doing,
00:03:49
you want to know how
both these exchanges are doing.
00:03:52
That's where indexes come in.
00:03:54
They take a whole bunch of share prices
and transform them into one clean number.
00:03:59
The S&P 500 tracks 500
00:04:01
of the largest
companies on both exchanges,
00:04:04
While the Dow is a lot more exclusive.
00:04:06
It only follows the 30 companies
it considers the most important.
00:04:10
In 2015, it booted out AT&T
and replaced it with Apple.
00:04:14
The Dow and S&P are big American indexes,
but other countries have their own indexes
00:04:20
to measure their stock markets.
00:04:21
The German stock index, Dax...
00:04:23
[woman] London's FTSE 100 index...
00:04:25
The Nikkei index...
00:04:26
[woman] The Shanghai index...
00:04:28
[narrator] Today, many of the world's
biggest companies are publicly traded,
00:04:32
but that wasn't always the case.
00:04:34
One guy, and it was almost always a guy,
used to call all the shots.
00:04:38
Big corporations of the 1900s,
most of them at that time
00:04:43
had a single shareholder
like Andrew Carnegie,
00:04:48
Vanderbilt.
00:04:52
Rockefeller.
00:04:56
They really exercised
very tight control over these businesses.
00:04:59
This all began to change
in the beginning of the 20th century.
00:05:04
We start to see the rise
of companies like General Motors
00:05:08
and General Electric and RCA.
00:05:10
[narrator] Companies discovered
what Jill discovered,
00:05:13
that if you allow the public
to buy shares, you can grow a lot faster.
00:05:18
Shareholders want to make money.
00:05:20
So if the CEO
makes a really bad decision,
00:05:22
they'll start selling their shares,
which will drive the price down.
00:05:26
The opposite is also true.
The possibility of a future payout
00:05:30
encourages people to invest
in risky new ideas.
00:05:33
That's the whole idea of the stock market
as a force for good.
00:05:35
It drives companies
to make good decisions,
00:05:38
so they have more money
to give back to shareholders
00:05:41
and more money to grow and create jobs,
and that's good for everybody.
00:05:45
By the middle of the 20th century,
the American public corporation
00:05:50
was proving itself one
of the most effective and powerful
00:05:55
and beneficial organizations in the world.
00:05:58
[man] There's a sense
of growing prosperity,
00:06:00
and the telephone company
is a grateful participant.
00:06:04
[narrator] Decades after World War II,
the stock market helped create the heyday
00:06:08
of shared American prosperity.
00:06:09
[man] A new era begins,
make the system more democratic,
00:06:12
increase the flow of capital
for the financing of business.
00:06:15
The corporation really was supposed
to be a vehicle
00:06:19
for providing investment opportunities,
not just to the very, very wealthy,
00:06:24
but to average Americans.
00:06:25
It's generating superior returns
for investors.
00:06:29
Don't you think we ought to invest?
00:06:31
[Stout]
Millions of secure, well-paid jobs.
00:06:34
It's producing innovative products
that are bought around the globe.
00:06:38
Executives and directors viewed themselves
as stewards or trustees
00:06:43
of great public institutions
that were supposed to serve,
00:06:47
not just shareholders,
but also bondholders,
00:06:50
suppliers, employees, the community.
00:06:55
[man] Buick has provided a stomping ground
for the cowboy-and-diaper set.
00:06:59
And Buick's general manager,
Ivan Wiles, drops in.
00:07:02
[man 2] Du Pont...
00:07:03
Modern chemistry
and modern industry join hands
00:07:07
in serving our modern America.
00:07:10
[narrator] These public corporations
helped build the American middle class,
00:07:14
and for people
who knew how to play it right,
00:07:16
trading their stocks
could build a fortune.
00:07:18
Like this guy.
00:07:20
♪ I've been working on the railroad... ♪
00:07:22
[narrator] Folk music is just his hobby.
Mostly, he's the billionaire investor...
00:07:26
[both] Warren Buffett...
00:07:27
-Biggest Wall Street titan of them all.
-America's most famous investor.
00:07:30
[woman] Investor Warren Buffett
is worth 84 billion.
00:07:33
[narrator] Buffett is famous
for a particular investment style.
00:07:36
Value investing,
careful analysis of a company,
00:07:40
looking at their balance sheet,
looking at their business.
00:07:43
[narrator] If you don't have time,
00:07:45
here's a tip from the man himself.
00:07:47
Buy an S&P 500 low-cost index fund.
00:07:52
[narrator] An index fund puts a little bit
of your money
00:07:54
in all companies in the index.
00:07:56
Basically, you're hitching your wagon
to the stock market.
00:07:59
The other option is to give your money
to professional investors,
00:08:03
who for a fee,
try to beat the stock market.
00:08:06
Buffett once bet a hedge fund
a million dollars that over ten years,
00:08:10
an index fund would make more money,
and he won.
00:08:13
Picking stocks is a hard game
but there's one popular strategy.
00:08:17
This guy, John Maynard Keynes.
00:08:19
You can remember him
by his epic mustache.
00:08:22
He came up with it.
Keynes was a Nobel Prize winner
00:08:25
and one of the most influential economists
of the 20th century,
00:08:29
and he noticed
that newspapers would do this thing.
00:08:31
[Robert Shiller] They would have
a full page of the newspaper dedicated
00:08:35
to photos of pretty faces,
00:08:37
and you were supposed
to pick the six prettiest faces
00:08:41
and mark them down in rank order
and mail them in to the newspaper.
00:08:45
[narrator] The newspaper would rank faces
based on how many votes they got,
00:08:49
and the winner was the person
whose choices matched the crowd's.
00:08:53
[Shiller] Let's think about that contest.
00:08:55
Do I really just pick what seem
to me the prettiest faces?
00:08:59
No, I should pick what other people think
are the prettiest faces.
00:09:03
That's kind of what happens
in the stock market.
00:09:05
[narrator] It's not the real value of
companies that drive their stock prices.
00:09:09
It's the most popular story people believe
about those companies.
00:09:14
Sometimes those stories are backed up
by facts.
00:09:17
[man] Chipotle stock has plunged
more than a third.
00:09:20
This comes after several outbreaks,
including E. coli, salmonella
00:09:24
and norovirus were linked to the chain.
00:09:26
An emissions scandal rocking Volkswagen
is sending its stock into a free fall.
00:09:31
[narrator]
But sometimes those stories are all hype.
00:09:33
[man] Internet companies are the hottest
and most profitable investments
00:09:37
-in a generation.
-[shouting]
00:09:38
They've driven the value
into the stratosphere.
00:09:41
Lycos, Excite, Yahoo...
00:09:43
Those internet stocks continue
their meteoric rise.
00:09:46
The narrative in the 1990s was
00:09:48
internet companies
are going to dominate.
00:09:50
These companies shouldn't be trying
to make profits.
00:09:53
That's a good story,
which is partly right.
00:09:55
We do have companies like Amazon, Google.
00:09:58
The problem is that nobody had any way
to calibrate this story.
00:10:02
How high should the market be?
00:10:03
Is it a boom without end?
00:10:05
[man] Has the economy changed for good?
00:10:07
You know something's wrong
when everyone's talking about
00:10:10
something like this. It's a bubble,
it's like a snowballing effect.
00:10:13
It keeps getting higher and higher.
It can't go on forever.
00:10:17
The Dot Com Honeymoon is coming
to a close in many parts of the world.
00:10:21
Many dot coms have become dot bombs.
00:10:23
[man] 300,000 tech jobs are now gone.
00:10:26
[man 2] It's described as nothing short
of breathtaking.
00:10:28
A points drop never before seen
on the US market.
00:10:31
It left traders and investors
shell-shocked.
00:10:34
[narrator]
When stock market bubbles burst,
00:10:36
it doesn't just hurt investors,
it wreaks havoc on the whole economy.
00:10:39
Millions of people can lose their jobs,
companies go under,
00:10:43
and pensions get pummeled.
00:10:44
But even when the stock market is up
and investors are making money,
00:10:48
that can hurt the economy, too.
00:10:50
We are heading towards
the most acute shortages of energy
00:10:53
since World War II.
00:10:55
[man] Motorists began lining up before
dawn in hopes of getting enough gasoline
00:10:59
to take them through the day.
00:11:00
[man 2] Are you mad
about the way prices have risen?
00:11:02
I am thoroughly discouraged
and disgusted with the whole thing.
00:11:05
[Stout] There was a general sense
of concern that something had gone wrong
00:11:08
in the American economy.
00:11:10
And eventually, the finger got pointed
at the way our large public corporations
00:11:16
were operating and being run.
00:11:17
[narrator] Meet the chief finger pointer--
Milton Friedman.
00:11:21
An economist so famous,
he was invited onto popular talk shows
00:11:24
to help explain his philosophy.
00:11:25
Did you ever have a moment of doubt
about capitalism?
00:11:29
And whether greed's a good idea to run on?
00:11:32
Tell me, is there some society you know
that doesn't run on greed?
00:11:35
[narrator] Remember the wheel?
Friedman was not a fan.
00:11:38
He thought it should have
exactly one spoke, shareholders.
00:11:41
In 1970, he published a blockbuster op-ed.
00:11:45
[Stout] The famous editorial that ran
in The New York Times,
00:11:48
in which he said that because corporations
were owned by their shareholders,
00:11:54
the only obligation of business was
to make profits.
00:11:58
[narrator] Gordon Gekko's character
in Wall Street
00:12:00
epitomizes Friedman's philosophy.
00:12:02
You own the company,
that's right, you the stockholder,
00:12:06
and you are all being royally screwed over
by these bureaucrats.
00:12:10
Greed, for lack of a better word, is good.
00:12:15
[narrator]
And corporations took his advice.
00:12:18
[Stout] They start tying the top
executives' pay
00:12:22
to share price performance.
00:12:24
Well, if 80% of the CEO's pay is based
00:12:28
on what the share price
is going to do next year,
00:12:30
he or she is going to do their best
to make sure that share price goes up.
00:12:36
Even if the consequences might be harmful
to employees, to customers, to society,
00:12:42
to the environment or even to
the corporation itself in the long-term.
00:12:46
[narrator] CEOs put more money towards
things that would increase stock prices
00:12:50
in the short-term, like cutting costs
or buying back a bunch of their own shares
00:12:54
to decrease the supply and artficially
bump up the price.
00:12:57
Between 2007 and 2016,
that's how companies in the S&P 500
00:13:03
spent more than half their earnings.
00:13:05
Another 39% went to their shareholders
as dividends,
00:13:09
which didn't leave much left
to raise wages or expand
00:13:12
or develop new products,
00:13:14
things that are good
for the economy in the long-term.
00:13:17
If you have a long-term view
that 100 years from now,
00:13:21
I still want to be a company,
maybe making something different,
00:13:24
but I still wanna be here.
So the choices that you make
00:13:27
in terms of investments and people
and in capital are different than
00:13:32
if you want to make an investment
and generate a return within 24 months.
00:13:36
[narrator] In 2012, the Wausau Paper
Company was making investments
00:13:39
to switch its factories
from making printing and writing paper
00:13:43
to making tissue paper.
00:13:45
But then a hedge fund bought up
a bunch of shares
00:13:47
and pushed the company
to cut costs instead.
00:13:50
Their argument would be,
"We don't need to do that.
00:13:52
What I'd rather see you do is
to increase the dividend."
00:13:54
As management, we disagreed with that.
00:13:56
We offered concessions.
00:13:57
We'd take a cut in pay just
to leave the doors open.
00:14:01
[woman] Wausau Paper says it plans
to close the Brokaw Mill by March 31st...
00:14:05
[man] Leaving about 450 people
without work.
00:14:08
The news is devastating, not just to
the workers who will lose their jobs,
00:14:11
but to the community of Brokaw,
where the paper company got its start.
00:14:14
December 7th, and I'll never forget that,
that's when Pearl Harbor was,
00:14:19
but that's the day
I was burying my father,
00:14:22
and it's the day I lost my job.
00:14:24
Then the next day, I came to work,
and it was just a madhouse.
00:14:27
You know, people just crying.
00:14:30
You know, "Why?" You know? And...
00:14:35
It was a shock.
00:14:36
[Hank Newell] My concern is we've evolved
to this much shorter-term view
00:14:41
on shareholder rights,
00:14:43
versus a longer-term view
on stakeholder responsibilities.
00:14:48
This is a trend that's been going on
for a while
00:14:51
and has gotten even more powerful
and important.
00:14:55
It's seriously threatening the ability
of our corporations
00:14:59
to pursue the kinds of projects that lead
to long-term corporate sustainability
00:15:04
and economic growth.
00:15:06
[narrator] Laying off workers,
closing factories, keeping wages low.
00:15:10
These are things that are bad
for the economy overall,
00:15:13
but can be great
for a company's short-term profits
00:15:16
and that's what
the stock market cares about.
00:15:19
The stock market got off
to an impressive start...
00:15:21
Another record today...
00:15:23
A day for the record books
on Wall Street...
00:15:24
The US economy charges ahead
and so do the bulls on Wall Street.
00:15:27
This was a big day on Wall Street...
00:15:29
The S&P 500 has raced out
to a new all-time high.
00:15:32
[narrator] As the stock market has grown,
so have CEO paychecks.
00:15:38
In 1973, the average CEO made
about 22 times more
00:15:42
than the average worker.
00:15:43
By 2016, it was 271 times more.
00:15:48
And as the stock market has grown bigger,
fewer Americans have benefited.
00:15:53
The share of Americans invested
in the stock market is at its lowest point
00:15:57
in 20 years,
as the middle class dropped out.
00:16:00
So it's no surprise that as stock prices
have gone up in the United States,
00:16:04
so has inequality,
but it doesn't have to be this way.
00:16:09
Stock markets give people a chance
to decide
00:16:12
which companies deserve to succeed,
which ideas are worth a gamble.
00:16:16
There's something about
giving people games to play.
00:16:19
You look at successful countries
and they all have stock markets,
00:16:23
and countries that tried
to shut them down
00:16:26
are coming around
and instituting them now.
00:16:28
[narrator] Stockholders can influence
how companies behave,
00:16:31
whose interest they take into account.
00:16:33
Most of us are thinking about
our long-term futures.
00:16:37
We care about our neighbors
and our children and our grandchildren.
00:16:42
We have values and morals
and want our companies to make money
00:16:47
by doing things that are good
for the world
00:16:50
and not by harming people
and destroying it.
00:16:53
That's what
most shareholders really want.
