Explained | The Stock Market | FULL EPISODE | Netflix — Transcript

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1. 0:06[bell rings]
2. 0:07I've always wondered myself,
3. 0:08why do we have to hear this every night, what the stock market is doing.
4. 0:12Seventy record closing highs so far...
5. 0:15[woman] Blasting through a ceiling In a record-setting IPO.
6. 0:18-Investors who've been riding the wave... -[narrator] When the market's booming,
7. 0:22we're made to believe the economy is booming.
8. 0:25And in America, the stock market has been mostly booming for almost 40 years,
9. 0:30[man] As the stock market goes, so goes the wealth
10. 0:32and the health of the American economy.
11. 0:34What the market is telling us is that we are on the road to prosperity.
12. 0:38...a sky-rocketing stock market, and that benefits everyone.
13. 0:41The stock market has gained almost three trillion dollars in value
14. 0:45since the election.
15. 0:47[narrator] But if you add up all the goods and services bought and sold in the US,
16. 0:51the actual economy, that number isn't growing as quickly as it used to.
17. 0:56Wages have hardly budged in decades
18. 0:58and the average American family's net worth
19. 1:01still hasn't recovered from the Great Recession.
20. 1:04So what exactly is the stock market measuring?
21. 1:09[man] The barometer of America's prosperity has been the stock exchange.
22. 1:12Look at the Dow, it's currently up by...
23. 1:14The NASDAQ finally hit 5,000.
24. 1:16Investors are salivating...
25. 1:17-Dividends! -[man] A new kind of gold rush...
26. 1:22We are all watching this global economic expansion...
27. 1:24We are now in historic territory...
28. 1:26A stock buy-back...
29. 1:27[woman] It's a fundamentally psychopathic philosophy.
30. 1:32[crowd applauding]
31. 1:40[narrator] To understand what stock markets are measuring,
32. 1:42it helps to imagine a very simple business like a lemonade stand.
33. 1:46-Jill is killing it. -[Jill] But I'm thinking bigger.
34. 1:50I tried to get a loan, but the bank said it was too risky.
35. 1:54The rich investors weren't buying.
36. 1:56[narrator] Jill has another option.
37. 1:58She can go public, giving anyone who wants to,
38. 2:02-the chance to invest in her business... -[clamoring]
39. 2:04...through something called an initial public offering or IPO.
40. 2:07Investors pay a certain amount, say a dollar, to own a small part
41. 2:11or share of Jill's business.
42. 2:13Jill sells a bunch of shares.
43. 2:15[Jill] And I grow my lemonade empire!
44. 2:17[narrator] Right, Jill can put that money towards opening new lemonade stands,
45. 2:21which means more profits.
46. 2:24Jill can put some of those profits towards developing new products.
47. 2:27She can also give some of that money back to her investors.
48. 2:30These are called dividends.
49. 2:32She doesn't have to do this, but it does help get people excited
50. 2:36about her company and more likely to buy her stock,
51. 2:39like Sam. He was sick on IPO day, but he thinks...
52. 2:43[Sam] Jill is the smartest girl in the whole world,
53. 2:46and I know this lemonade stand thing is gonna be huge.
54. 2:50[narrator] So he offers to buy some shares from one of the original investors
55. 2:54for twice what she paid for them.
56. 2:56He's thinking...
57. 3:01[narrator] That's the stock market.
58. 3:03It's people buying and selling tiny pieces of companies,
59. 3:05based on how much they think those pieces will be worth in the future.
60. 3:09Except in real life,
61. 3:11it's happening thousands of times a second, all over the world.
62. 3:14There are stock markets everywhere,
63. 3:16but the New York Stock Exchange is the big kahuna.
64. 3:19It's been around since 1792,
65. 3:21when 24 stockbrokers put on their finest short pants and top hats
66. 3:25and got together under a buttonwood tree on Wall Street in New York City.
67. 3:29Today, it's where shares in big traditional companies like IBM
68. 3:32and GE are traded.
69. 3:34The NASDAQ is the cooler younger brother.
70. 3:37It was born in 1971 and doesn't have a physical location.
71. 3:40All the trading happens electronically.
72. 3:42That's where you find tech companies like Apple and Facebook.
73. 3:46So, in America if you want to know how the stock market is doing,
74. 3:49you want to know how both these exchanges are doing.
75. 3:52That's where indexes come in.
76. 3:54They take a whole bunch of share prices and transform them into one clean number.
77. 3:59The S&P 500 tracks 500
78. 4:01of the largest companies on both exchanges,
79. 4:04While the Dow is a lot more exclusive.
80. 4:06It only follows the 30 companies it considers the most important.
81. 4:10In 2015, it booted out AT&T and replaced it with Apple.
82. 4:14The Dow and S&P are big American indexes, but other countries have their own indexes
83. 4:20to measure their stock markets.
84. 4:21The German stock index, Dax...
85. 4:23[woman] London's FTSE 100 index...
86. 4:25The Nikkei index...
87. 4:26[woman] The Shanghai index...
88. 4:28[narrator] Today, many of the world's biggest companies are publicly traded,
89. 4:32but that wasn't always the case.
90. 4:34One guy, and it was almost always a guy, used to call all the shots.
91. 4:38Big corporations of the 1900s, most of them at that time
92. 4:43had a single shareholder like Andrew Carnegie,
93. 4:48Vanderbilt.
94. 4:52Rockefeller.
95. 4:56They really exercised very tight control over these businesses.
96. 4:59This all began to change in the beginning of the 20th century.
97. 5:04We start to see the rise of companies like General Motors
98. 5:08and General Electric and RCA.
99. 5:10[narrator] Companies discovered what Jill discovered,
100. 5:13that if you allow the public to buy shares, you can grow a lot faster.
101. 5:18Shareholders want to make money.
102. 5:20So if the CEO makes a really bad decision,
103. 5:22they'll start selling their shares, which will drive the price down.
104. 5:26The opposite is also true. The possibility of a future payout
105. 5:30encourages people to invest in risky new ideas.
106. 5:33That's the whole idea of the stock market as a force for good.
107. 5:35It drives companies to make good decisions,
108. 5:38so they have more money to give back to shareholders
109. 5:41and more money to grow and create jobs, and that's good for everybody.
110. 5:45By the middle of the 20th century, the American public corporation
111. 5:50was proving itself one of the most effective and powerful
112. 5:55and beneficial organizations in the world.
113. 5:58[man] There's a sense of growing prosperity,
114. 6:00and the telephone company is a grateful participant.
115. 6:04[narrator] Decades after World War II, the stock market helped create the heyday
116. 6:08of shared American prosperity.
117. 6:09[man] A new era begins, make the system more democratic,
118. 6:12increase the flow of capital for the financing of business.
119. 6:15The corporation really was supposed to be a vehicle
120. 6:19for providing investment opportunities, not just to the very, very wealthy,
121. 6:24but to average Americans.
122. 6:25It's generating superior returns for investors.
123. 6:29Don't you think we ought to invest?
124. 6:31[Stout] Millions of secure, well-paid jobs.
125. 6:34It's producing innovative products that are bought around the globe.
126. 6:38Executives and directors viewed themselves as stewards or trustees
127. 6:43of great public institutions that were supposed to serve,
128. 6:47not just shareholders, but also bondholders,
129. 6:50suppliers, employees, the community.
130. 6:55[man] Buick has provided a stomping ground for the cowboy-and-diaper set.
131. 6:59And Buick's general manager, Ivan Wiles, drops in.
132. 7:02[man 2] Du Pont...
133. 7:03Modern chemistry and modern industry join hands
134. 7:07in serving our modern America.
135. 7:10[narrator] These public corporations helped build the American middle class,
136. 7:14and for people who knew how to play it right,
137. 7:16trading their stocks could build a fortune.
138. 7:18Like this guy.
139. 7:20♪ I've been working on the railroad... ♪
140. 7:22[narrator] Folk music is just his hobby. Mostly, he's the billionaire investor...
141. 7:26[both] Warren Buffett...
142. 7:27-Biggest Wall Street titan of them all. -America's most famous investor.
143. 7:30[woman] Investor Warren Buffett is worth 84 billion.
144. 7:33[narrator] Buffett is famous for a particular investment style.
145. 7:36Value investing, careful analysis of a company,
146. 7:40looking at their balance sheet, looking at their business.
147. 7:43[narrator] If you don't have time,
148. 7:45here's a tip from the man himself.
149. 7:47Buy an S&P 500 low-cost index fund.
150. 7:52[narrator] An index fund puts a little bit of your money
151. 7:54in all companies in the index.
152. 7:56Basically, you're hitching your wagon to the stock market.
153. 7:59The other option is to give your money to professional investors,
154. 8:03who for a fee, try to beat the stock market.
155. 8:06Buffett once bet a hedge fund a million dollars that over ten years,
156. 8:10an index fund would make more money, and he won.
157. 8:13Picking stocks is a hard game but there's one popular strategy.
158. 8:17This guy, John Maynard Keynes.
159. 8:20You can remember him by his epic mustache.
160. 8:22He came up with it. Keynes was a Nobel Prize winner
161. 8:25and one of the most influential economists of the 20th century,
162. 8:29and he noticed that newspapers would do this thing.
163. 8:31[Robert Shiller] They would have a full page of the newspaper dedicated
164. 8:35to photos of pretty faces,
165. 8:37and you were supposed to pick the six prettiest faces
166. 8:41and mark them down in rank order and mail them in to the newspaper.
167. 8:45[narrator] The newspaper would rank faces based on how many votes they got,
168. 8:49and the winner was the person whose choices matched the crowd's.
169. 8:53[Shiller] Let's think about that contest.
170. 8:55Do I really just pick what seem to me the prettiest faces?
171. 8:59No, I should pick what other people think are the prettiest faces.
172. 9:03That's kind of what happens in the stock market.
173. 9:05[narrator] It's not the real value of companies that drive their stock prices.
174. 9:09It's the most popular story people believe about those companies.
175. 9:14Sometimes those stories are backed up by facts.
176. 9:17[man] Chipotle stock has plunged more than a third.
177. 9:20This comes after several outbreaks, including E. coli, salmonella
178. 9:24and norovirus were linked to the chain.
179. 9:26An emissions scandal rocking Volkswagen is sending its stock into a free fall.
180. 9:31[narrator] But sometimes those stories are all hype.
181. 9:33[man] Internet companies are the hottest and most profitable investments
182. 9:37-in a generation. -[shouting]
183. 9:38They've driven the value into the stratosphere.
184. 9:41Lycos, Excite, Yahoo...
185. 9:43Those internet stocks continue their meteoric rise.
186. 9:46The narrative in the 1990s was
187. 9:48internet companies are going to dominate.
188. 9:50These companies shouldn't be trying to make profits.
189. 9:53That's a good story, which is partly right.
190. 9:55We do have companies like Amazon, Google.
191. 9:58The problem is that nobody had any way to calibrate this story.
192. 10:02How high should the market be?
193. 10:03Is it a boom without end?
194. 10:05[man] Has the economy changed for good?
195. 10:07You know something's wrong when everyone's talking about
196. 10:10something like this. It's a bubble, it's like a snowballing effect.
197. 10:13It keeps getting higher and higher. It can't go on forever.
198. 10:17The Dot Com Honeymoon is coming to a close in many parts of the world.
199. 10:21Many dot coms have become dot bombs.
200. 10:23[man] 300,000 tech jobs are now gone.
201. 10:26[man 2] It's described as nothing short of breathtaking.
202. 10:28A points drop never before seen on the US market.
203. 10:31It left traders and investors shell-shocked.
204. 10:34[narrator] When stock market bubbles burst,
205. 10:36it doesn't just hurt investors, it wreaks havoc on the whole economy.
206. 10:39Millions of people can lose their jobs, companies go under,
207. 10:43and pensions get pummeled.
208. 10:44But even when the stock market is up and investors are making money,
209. 10:48that can hurt the economy, too.
210. 10:50We are heading towards the most acute shortages of energy
211. 10:53since World War II.
212. 10:55[man] Motorists began lining up before dawn in hopes of getting enough gasoline
213. 10:59to take them through the day.
214. 11:00[man 2] Are you mad about the way prices have risen?
215. 11:02I am thoroughly discouraged and disgusted with the whole thing.
216. 11:05[Stout] There was a general sense of concern that something had gone wrong
217. 11:08in the American economy.
218. 11:10And eventually, the finger got pointed at the way our large public corporations
219. 11:16were operating and being run.
220. 11:17[narrator] Meet the chief finger pointer-- Milton Friedman.
221. 11:21An economist so famous, he was invited onto popular talk shows
222. 11:24to help explain his philosophy.
223. 11:25Did you ever have a moment of doubt about capitalism?
224. 11:29And whether greed's a good idea to run on?
225. 11:32Tell me, is there some society you know that doesn't run on greed?
226. 11:35[narrator] Remember the wheel? Friedman was not a fan.
227. 11:38He thought it should have exactly one spoke, shareholders.
228. 11:41In 1970, he published a blockbuster op-ed.
229. 11:45[Stout] The famous editorial that ran in The New York Times,
230. 11:48in which he said that because corporations were owned by their shareholders,
231. 11:54the only obligation of business was to make profits.
232. 11:58[narrator] Gordon Gekko's character in Wall Street
233. 12:00epitomizes Friedman's philosophy.
234. 12:02You own the company, that's right, you the stockholder,
235. 12:06and you are all being royally screwed over by these bureaucrats.
236. 12:10Greed, for lack of a better word, is good.
237. 12:15[narrator] And corporations took his advice.
238. 12:18[Stout] They start tying the top executives' pay
239. 12:22to share price performance.
240. 12:24Well, if 80% of the CEO's pay is based
241. 12:28on what the share price is going to do next year,
242. 12:30he or she is going to do their best to make sure that share price goes up.
243. 12:36Even if the consequences might be harmful to employees, to customers, to society,
244. 12:42to the environment or even to the corporation itself in the long-term.
245. 12:46[narrator] CEOs put more money towards things that would increase stock prices
246. 12:50in the short-term, like cutting costs or buying back a bunch of their own shares
247. 12:54to decrease the supply and artficially bump up the price.
248. 12:57Between 2007 and 2016, that's how companies in the S&P 500
249. 13:03spent more than half their earnings.
250. 13:05Another 39% went to their shareholders as dividends,
251. 13:09which didn't leave much left to raise wages or expand
252. 13:12or develop new products,
253. 13:14things that are good for the economy in the long-term.
254. 13:17If you have a long-term view that 100 years from now,
255. 13:21I still want to be a company, maybe making something different,
256. 13:24but I still wanna be here. So the choices that you make
257. 13:27in terms of investments and people and in capital are different than
258. 13:32if you want to make an investment and generate a return within 24 months.
259. 13:36[narrator] In 2012, the Wausau Paper Company was making investments
260. 13:39to switch its factories from making printing and writing paper
261. 13:43to making tissue paper.
262. 13:45But then a hedge fund bought up a bunch of shares
263. 13:47and pushed the company to cut costs instead.
264. 13:50Their argument would be, "We don't need to do that.
265. 13:52What I'd rather see you do is to increase the dividend."
266. 13:54As management, we disagreed with that.
267. 13:56We offered concessions.
268. 13:57We'd take a cut in pay just to leave the doors open.
269. 14:01[woman] Wausau Paper says it plans to close the Brokaw Mill by March 31st...
270. 14:05[man] Leaving about 450 people without work.
271. 14:08The news is devastating, not just to the workers who will lose their jobs,
272. 14:11but to the community of Brokaw, where the paper company got its start.
273. 14:14December 7th, and I'll never forget that, that's when Pearl Harbor was,
274. 14:19but that's the day I was burying my father,
275. 14:22and it's the day I lost my job.
276. 14:24Then the next day, I came to work, and it was just a madhouse.
277. 14:27You know, people just crying.
278. 14:30You know, "Why?" You know? And...
279. 14:35It was a shock.
280. 14:36[Hank Newell] My concern is we've evolved to this much shorter-term view
281. 14:41on shareholder rights,
282. 14:43versus a longer-term view on stakeholder responsibilities.
283. 14:48This is a trend that's been going on for a while
284. 14:51and has gotten even more powerful and important.
285. 14:55It's seriously threatening the ability of our corporations
286. 14:59to pursue the kinds of projects that lead to long-term corporate sustainability
287. 15:04and economic growth.
288. 15:06[narrator] Laying off workers, closing factories, keeping wages low.
289. 15:10These are things that are bad for the economy overall,
290. 15:13but can be great for a company's short-term profits
291. 15:16and that's what the stock market cares about.
292. 15:19The stock market got off to an impressive start...
293. 15:21Another record today...
294. 15:23A day for the record books on Wall Street...
295. 15:24The US economy charges ahead and so do the bulls on Wall Street.
296. 15:27This was a big day on Wall Street...
297. 15:29The S&P 500 has raced out to a new all-time high.
298. 15:32[narrator] As the stock market has grown, so have CEO paychecks.
299. 15:38In 1973, the average CEO made about 22 times more
300. 15:42than the average worker.
301. 15:43By 2016, it was 271 times more.
302. 15:48And as the stock market has grown bigger, fewer Americans have benefited.
303. 15:53The share of Americans invested in the stock market is at its lowest point
304. 15:57in 20 years, as the middle class dropped out.
305. 16:00So it's no surprise that as stock prices have gone up in the United States,
306. 16:04so has inequality, but it doesn't have to be this way.
307. 16:09Stock markets give people a chance to decide
308. 16:12which companies deserve to succeed, which ideas are worth a gamble.
309. 16:16There's something about giving people games to play.
310. 16:19You look at successful countries and they all have stock markets,
311. 16:23and countries that tried to shut them down
312. 16:26are coming around and instituting them now.
313. 16:28[narrator] Stockholders can influence how companies behave,
314. 16:31whose interest they take into account.
315. 16:33Most of us are thinking about our long-term futures.
316. 16:38We care about our neighbors and our children and our grandchildren.
317. 16:42We have values and morals and want our companies to make money
318. 16:47by doing things that are good for the world
319. 16:50and not by harming people and destroying it.
320. 16:53That's what most shareholders really want.