The Stock Market Explained

I just watched an episode in the Netflix series Explained about the stock market (season 1, episode 7). It is a great argument for investing in ESG (Environmental, Social, Governance) Investments (also known as Impact Investing Funds or Socially Responsible Investing (SRI) Funds).

They discuss what the stock market measures and that is does not reflect the economic situation for everyone.

They explain that a rising stock market (which is hitting all time high levels) does not mean that the economy is strong. The stock market measures what corporate returns and potential returns. However, what is good for corporations is not always the same thing that is best for its workers and consumers.

They show that as corporate profits have been moving up significantly, along with executive compensation, average worker income and the savings for the average American has not moved up over time. The average worker has not benefited from the huge market gains.

A company’s stock price, and a company’s profit, will go up when a company buys back shares, but that does not help the average worker.  Company profits and share prices go up when a company becomes more efficient. That could include laying off workers and cutting benefits. This does not help the typical worker. Not consider the environment would help share prices but not the community where the company operates.

They stated that only about half of Americans own stocks in companies. That means that half of the population is not benefiting from the  stock market levels.

They illustrate how stocks and the stock market works with a simple lemon aid stand. To grow, the business can borrow or another option is to have an IPO (initial public offering) of stock. They raise funds by selling parts of the company.  Those owners, share holders, control the company.

The program states that share holders can force companies to be responsible.  They do not go any further into how to do that. There are many options, through: individual stocks, separately managed accounts or socially responsible mutual funds. The point is to engage or have someone engage on your behalf to keep companies benefiting the communities where they operate.