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