Explained | The Stock Market | FULL EPISODE | Netflix

Introduction to the Stock Market

• The stock market is a central part of the American economy and suggests economic prosperity.

• It has seen historical highs consistently for almost 40 years.

• The market value has increased by nearly three trillion dollars since the last presidential election.

Discrepancy Between Stock Market and Economy

• Despite stock market successes, the actual economy, which includes goods and services, is not growing as rapidly.

• Wages have remained stagnant over decades; many families have yet to recover from the Great Recession.

• The stock market is perceived as a barometer of prosperity, but its measures may be misleading.

The Basics of Stock Markets

• Stock markets function through the buying and selling of shares of companies.

• Example of Jill's lemonade stand illustrates how a business can go public through an IPO (Initial Public Offering).

  • Investors purchase shares, enabling Jill to expand her business.

  • Profits can be reinvested or returned to investors as dividends, stimulating interest in Jill's company shares.

• Stock market transactions happen rapidly, with various exchanges existing globally (e.g., NYSE, NASDAQ).

Major U.S. Stock Exchanges

• New York Stock Exchange (NYSE): Established in 1792; focuses on traditional, established companies like IBM and GE.

• NASDAQ: Founded in 1971; operates electronically and features tech giants like Apple and Facebook.

• Stock market indexes (like the S&P 500 and Dow Jones) aggregate share prices to provide insights into market performance.

  • S&P 500 tracks 500 large companies; Dow Jones focuses on 30 key companies.

Evolution of Public Corporations

• In early 1900s, companies were often controlled by single shareholders (e.g., Carnegie, Rockefeller).

• Early 20th century brought corporations allowing public shares for growth.

  • Shareholders influence company decisions through buying/selling shares based on perceived performance.

  • Stock markets potentially drive businesses to make prudent decisions that benefit the economy.

Post-War Economic Expansion

• The stock market played a significant role in creating shared prosperity after WWII.

• Public corporations were expected to benefit not only shareholders but also employees, suppliers, and communities.

• Prominent figures, like Warren Buffett, advocate for long-term, value-based investing strategies.

Short-Term vs. Long-Term Focus

• A rising trend towards prioritizing short-term stock performance often conflicts with long-term sustainability.

  • Executives often rewarded for short-term share price performance.

  • Companies might cut costs, close facilities, or avoid investing in workforce stability.

• The Wausau Paper Company case demonstrates the negative impact of hedge funds prioritizing short-term gains.

Effects of Market Bubbles

• Market bubbles can devastate the economy, leading to job loss and company failures.

• Short-term profit-fixation can cause long-term economic harm, countering overall growth.

Milton Friedman’s Impact on Corporate Philosophy

• Milton Friedman argued that corporations' primary responsibility is to generate profits for shareholders.

  • This philosophy led to increased CEO compensations tied closely to stock performance.

• Corporations focused on boosting short-term stock prices often at the cost of employees and long-term success.

Income Inequality and Stock Market Trends

• Growing stock market success has not equitably benefited the American public; the middle class's involvement in the stock market has dwindled.

• This growing disparity contributes to rising income inequality as stock prices rise.

The Role of Shareholders in Shaping Corporate Responsibility

• There's potential for stockholders to assert pressure on companies to consider broader stakeholder interests beyond just profits.

• Many shareholders desire ethical practices that benefit society while contributing to financial performance.

• Countries with stock markets generally display strong economic health; efforts to curb stock markets have led to reforms supporting their establishment.

Conclusion

• The stock market presents opportunities for growth, investment, and influence over corporate behavior.

• The overall goal should be aligning profit-making with societal good, ensuring a sustainable future for all.