Fidelity: The 8 Trillion Dollar Private Company | A Finance Documentary

it is november 25th of 1986 a day before the shareholder meeting of a legendary company kaiser steele it was founded by american tycoon henry kaiser in 1941 who 10 years earlier built one of the most impressive projects of mankind the hoover dam we are here to celebrate the completion of the greatest term in the world after world war ii the steel company has gone on to become a corporate giant but by the early 1970s due to the increase in labor costs and the competition from china kaiser and the entire steel industry declined sharply while the company is in terrible shape the management team spends lavishly on themselves including buying three corporate jets and mansions by 1986 it becomes a target of a hostile takeover bruce hendry a tough corporator aims to gain control over kaiser's steel corporation he plans to dismantle the company and sell them for pieces before it declines even further hendry has gathered a team of shrewd business operators ready to replace six out of 11 board seats at kaiser tomorrow a line will be drawn the kaiser's management team versus the corporate raiders but ultimately the decision lies in the hands of just one particular shareholder ned johnson by 1986 fidelity reigns supreme on wall street containing hundreds of mutual funds with the largest one being the fidelity fund it has 65 billion dollars of assets money entrusted by millions of middle class americans but these americans may not know when they invest their money into fidelity they are giving out their voting power and this voting power now belongs to one man the ceo of fidelity ned johnson it's the type of power that can alter the direction of corporate america for a long time mutual funds pledge that it will always remain neutral in corporate fights and always side with the majority of the rest of the shareholders for most takeover battles it's clear which side is more profitable but for kaiser is not very obvious who to back for the first time nat johnson is compelled to wield that power but until the shareholder meeting happens no one really knows which side is on the incompetent and wasteful management team or the barbarians at the gate [Music] on the day of the shareholder meeting for kaiser fidelity shocks everyone by firing the current management team but it also rejects hendry's plan instead fidelity decide to bring on a ceo of their own practically fidelity screwed them both and took over the company for itself although the battle for kaiser is far from finished fidelity's active involvement in kaiser's board has altered the company's fate forever [Music] [Music] [Applause] in the 19th century railroads were the bloodlines for the american economy it allowed the country to quickly rise up for the ashes of civil war and become an industrial superpower union pacific is the second largest railroad company in america so-called a duopoly now here we are union pacific the strategic middle rock operating around 9 600 miles of road we serve some of the best neighborhoods in the country but by the end of the 19th century railroads have been overbuilt to survive union pacific tries to develop a new competitive edge they plan to build the nation's first refrigerated train cars to transport produce from southern california to the rest of the country but before they could enact their grand plan a disaster strikes [Music] an earthquake in san francisco causes a great destruction to railroad tracks in california and also sends a shockwave to wall street where the stock of union pacific is being traded the stockholders lost millions in a single day but there's a one man who's made a fortune from this incident jesse livermore a week prior as a stock trader livermore have been borrowing shares of union pacific stocks and immediately selling them in a market a scheme called short selling jesse livermore had a hunch that something unexplainable and awful was going to happen to profit from the downfall of union pacific he sells short as many shares as he could borrow hoping to repurchase them at a lower price and pocket the difference when the earthquake happens just a little more nets 255 000 of profit the equivalent of 7.5 million dollars today in just one trade while no one knows how he predicted the collapse jesse livermore goes on to become a stock trading legend his story is later published in a book a decade later called reminiscences of a stock operator this book will inspire a generation of americans to join the stock market boom in the roaring 20s one of these wannabe stock millionaires is a law student at harvard edward crosby johnson benjamin franklin one of the founding members of america has also accumulated a fortune by the time he passes on in 1790 on his deathbed franklin planned to donate his fortune to charitable causes after his gone but he also knows the power of compounding interest he calls upon a group of people businessman and lawyers in boston to invest and grow his money for at least a century before donating them this trust becomes one of the earliest forms of mutual funds and boston becomes the hotbed for the mutual fund industry born in a wealthy family edward crosby johnson enrolls in harvard law school by following his family's tradition [Music] but after reading about jesse livermore at johnson dreams and making a fortune by trading stocks he then enrolls in harvard business school to learn about investing during the roaring twenties but this was the first time that joe on the street saw the stock market going up and decided i'm gonna go get myself a loan to buy stock and by the way i'm going to make a handsome profit doing it day by day we were nearer to the final triumph over poverty than ever before in the history of any land but just as ed johnson is about to quit his day job and jump into the stock market the great depression has arrived and there must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of chalice and selfish wrongdoing there were many causes for the great depression but one of the obvious ones were these investment trusts that spun a lot of money from average americans in order to gamble in a stock market like the mutual funds at the time these investment trusts are unregulated they often borrow money in the bond market in order to speculate in stocks they also don't need to report their holdings to the government and their investors many funds even become money laundering shadow banks that are owned by the mobsters but after the great depression all of that is about to change the fdr administration swiftly passes many regulations to prevent wall street from stealing the taxpayers money to speculate it is perhaps the worst time to join wall street but ed johnson decides to become a better investor he needs to find himself a mentor and through his family connection he meets william parker the owner of one of the largest mutual funds at the time called incorporated investors started as an accountant johnson quickly climbs a letter and becomes a chief financial officer but on the side he also starts managing money for wealthy friends and families in boston although ed johnson's job is lucrative he also wants to become his own boss he decides to start searching for a small mutual fund that he can take over the fidelity fund started right after the great depression by two stock brokers in boston with forty four thousand dollars in assets they take advantage of the negative sentiment the investors feel towards mutual they market their fidelity fund as a safe place that doesn't use any leverage or borrowed money to invest and also has a more diversified strategy in just three years it grows its assets to 3.3 million dollars but then the fidelity fund becomes stagnated as the country is being distracted by the world war ii as an open-end fund where investors can buy and redeem their money at moment's notice they struggle to find more buyers of their mutual fund by the 1940s ed johnson enjoys a successful career in finance with multiple sources of income including six figures a year from salaries dividends and the management fees but that is not enough at johnson dreams of owning his own fund he realizes that fidelity is an excellent target for takeover and an opportunity to be his own boss he plans to consolidate his assets and combine them with fidelity but he also has a more sinister plan to grow fidelity at the time ed johnson had a lot of jobs and there was no such a thing as non-compete agreement while johnson is still on the payroll of incorporated investors he starts quietly stealing their business and sending it straight to fidelity the small mutual funds he just took over use the company's resources like brokers and dealers to bring more business to fidelity i deem this reply a full acceptance of the potsdam declaration which specifies the unconditional surrender of japan while world war ii is over at johnson has also won a secret war of his own for years he's been quietly building his own company under his mentor's nose a direct competition to his boss mutual fund the timing is impeccable after the war ended america is about to enter a huge bull market the 1950s for johnson he realizes that in a bull market the best way to get rich as a mutual fund manager is not by performing well but by selling well johnson was among the first to hire third-party professional sales people to distribute the mutual funds to the public that was the beginning of the boiler room culture when salespeople were very persistent aggressive and intimidating but johnson also rebrands the image of mutual funds from speculative gambling machines to a safe haven for the risk-averse american public he does that by emphasizing diversification by the end of the decade of the 1950s fidelity becomes a major force on wall street managing over 400 million dollars and slowly ed johnson's style of mutual funds become the industry standard but that also means he's losing his competitive edge beat his rivals ed johnson must find ways to outperform everyone else ed johnson finds himself a protege jerry thai a chinese man who will soon make fidelity the most competitive mutual fund in the industry [Music] america is rising after world war ii the country experiences a period of growth like no one has ever seen the prosperity once again has come back to wall street a company at the forefront of this growing bull market is fidelity a mutual fund giant run by the boston financier edward johnson through aggressive sales and marketing johnson has brought fidelity from obscurity to prominence but the competition is quickly catching up his biggest competitor is jack dreifus an aggressive trader who has consistently outperformed the industry by investing in growth stocks johnson knows the rules of the game are about to change he needs to come up with a new way to beat his rivals and he finds just the man to do the job he's going to use a new strategy that no mutual funds have tried high frequency trading with technical analysis technical analysis is the analysis of stock prices or maybe other speculative asset prices by looking at charts of the prices and looking for patterns that suggest movements in prices technical analysis is a subtle arc that can augment trading strategies what type did differently from other investors was that he focused on the short-term trading patterns he also traded in higher frequencies often going in and out of position within a day that was before trading was computerized fidelity had to hire a lot of brokers in order to accommodate his trades it works his phone starts creating about 20 profit a year for almost five years started with just 10 million dollars jared thai fidelity capital attracts 100 million dollars within three years and then another 100 million a year later with this success it becomes apparent that tai was see his mentor as a new boss at fidelity but ad johnson has a different plan in an increasingly complex world it is more important than ever to do independent thinking brilliant.org is a great place to learn the tools that sharpen one's ability to think subjects like logic probability and game theory will teach you entirely new ways to think about the world of finance charlie munger calls them mental models by learning different subjects one develops multiple ways of thinking for example almost all great investors tend to be good poker players with a casino probability course at brilliant you get to learn and practice how to make optimal decisions under uncertainty and imperfect knowledge what makes brilliant stand out from the rest is that it makes seemingly complex subjects very easy to learn the courses are highly interactive and it makes a learning process much more fun and effective to get started for free visit brilliant.org phineas or click the link in the description the first 200 people will get a 20 off brilliant annual premium subscription when jerry tai was running the fidelity capital fund and raking hundreds of millions at johnson also started a second fund for son ned johnson growing up as aristocratic child nat johnson is more social than his father and able to communicate with people of all backgrounds and social classes after graduating from harvard he joins fidelity and starts running a growth fund set up by his father although his performance is excellent he is outshined by his father's protege jared thai by early 1970s edward johnson is retiring to the outside world it seems that jerry thai his beloved and overachieving student is the ideal candidate to succeed in but secretly ed johnson has been planning for his son ned to be his successor for years jeretai has devoted his energy and talent to fidelity under the impression that he will one day become the ceo but eventually it becomes obvious to tai the fidelity never belongs to anyone but to the johnson family he resigns from the company and starts his own firm with his exile many fidelity investors also jumped ship as they realized they could make more money by following thai [Music] it causes a significant loss of capital for fidelity but to the newly crowned ceo net johnson a much worse situation is about to unfold [Music] by the start of the 1970s a terrible bear market has arrived and this one is unlike anything in recent american history an inflationary depression and arthur burns chairman of the fit he did not do what a good central banker should do and raise rates to break the inflation and by the time the 70s ended it was a total mess the mutual fund industry collapses by almost a half and fidelity is bleeding money net johnson just became the ceo with a chip on his shoulder he was never the ideal candidate for the job and with the exodus of the star investor jerry thai and the raging bear market ned johnson may lose everything his father has built for him [Music] to save fidelity johnson knows he cannot rely on his own talent as an investor but to play his bets on younger talents in that particular bear market no one was investing in stock mutual funds in order to keep them alive johnson had to get into money market mutual fund business so a money market fund will generally invest in highly liquid cash instruments with very short maturities and they're typically seen as one of the safest forms of investments you can make tell you the 74 market crash fidelity was in the red now what if we hadn't had a huge money market fund that was making us money while we were losing our shirts while many of his competitors have given up on stock mutual funds net johnson believes that is still the future [Music] he just needs to find someone as talented as jerry thai [Music] peter lynch had a tragic childhood when his father died from cancer when he was just 10 years old growing up without a father taught lynch the importance of having financial freedom to get there he knows finance is the number one industry to get into after earning his mba from wharton business school lynch was hired as a research analyst specializing in steel and metals on the side lynch has built a high-performing stock portfolio during the time when everyone was losing money he was making money so eventually everyone at fidelity was going to him for stock tips to net johnson peter lynch is exactly the type of talent needed to revive fidelity's stock mutual funds without hesitation he promotes lynch as the head of their magellan fund i described dan one word dynamic he attracts good people he want to come here it's because of him he's one of the greatest people to work for ever [Music] unlike jerry thai peter lynch couldn't care less about charts and short-term fluctuations of stocks as a student of logic he believes in a simple proposition when you buy a company to grow and if it's a textile company or it's an electronics company a software company you better understand what they do and and if they do well the stock will do well no matter what happens the market but it's more nuanced than that to win like peter lynch one has to find companies that have the potential to do well and that are yet to be discovered by wall street his way of investing requires a lot of leg work but it works over the next decade peter lynch beats the market almost every single year with an average return of almost 30 percent annually since 1977 lynch's magellan fund returned two thousand four hundred seventy percent as compared to a return of little better than five hundred percent in standard and poor's 500 stock index hiring peter lynch has been a stroke of genius nat johnson capitalizes on peter lynch celebrity status by opening up more funds [Music] for johnson fidelity is a product company almost anything an investor wants he will build it for them they got retirement funds tax savings fund technology funds industry specific funds it's almost like they are walmart for mutual funds but then by the start of 1990 peter lynch does the unthinkable [Music] peter lynch former manager of fidelity's boston-based 13 billion magellan fund surprised wall street in may 1990 by retiring at age 46. the retirement of lynch comes as a shock to everyone in finance but it's especially inconvenient for net johnson as lynch has been his biggest cash cow for nearly a decade to make matters worse in a span of three years many fidelity executives are indicted for junk bond related schemes the allegation was very serious but it's particularly bad for a mutual fund when investors can redeem their shares and moments notice so any staying on their reputation will cost them to make less money net johnson is once again back against the wall his company and his reputation are under threat but he eventually realizes that to bring the company out of the scandal one thing must be done peter lynch must come out of retirement [Music] in 1992 to help restore the public's faith and fidelity peter lynch returns to save the day but he will no longer manage magellan fund instead he will only be working two days a week as more or less on a brand ambassador lynch's return quiets fears and fidelity slowly stabilizes as the bull market returns in the early 90s fidelity is again taking full advantage although competitors like vanguard are gaining prominence fidelity still manages to hold us all all thanks to net johnson's leadership unlike his father ned johnson is really an institution builder his father was content for fertility to be a boutique investment firm but ned johnson has transformed fidelity into a global financial powerhouse while fidelity doesn't act like a family business anymore ned johnson and his family are still in total control of the empire to ensure fidelity always stays in the hands of the johnsons he starts grooming his children to take his place out of all of his kids his oldest abigail johnson seemed to be the most unlikely candidate i certainly never knew that i would actually get to the position that i've gotten to now i was always interested in the business it was impossible not to learn about it between my grandfather and my father ebby is a great salesman like her father and an excellent communicator but at the same time she's also very controlling and secretive by 1994 that johnson starts giving his voting shares to his children but to abby it's a sign that her time has come at the time net johnson was very fuzzy about when to retire and who to succeed him i think the power of being a ceo of fidelity is very addictive net justin doesn't want to retire until the very end abby johnson agonizes over the uncertainty until she decides to orchestrate a coupe [Music] in 2001 abby johnson decides to take a shot at the king she secretly gathers the key stockholders of fidelity in an attempt to remove her own father from the ceo position but it was unsuccessful as the board decides to support nat johnson the man who practically built the fidelity empire but her actions also earn the respect of her father as she demonstrates the ruthlessness that is required in the business nat johnson remains in power for another 10 years until finally abigail johnson finally takes over the throne of the trillion dollar empire [Music] in 2022 fidelity is still at the very top of the finance industry with almost 8 trillion dollars of assets with it comes immense power to influence corporate america but what makes fidelity more powerful and potentially dangerous is the fact that it's still a private company owned by just one family back in 2018 when major financial institutions were very hesitant about cryptos fidelity already started a cryptocurrency fund do they care about cryptocurrency no they just want your money the essence of wall street doesn't change with every new generation they always come up with new ways to gather money whether it is through mutual funds or the more modern index funds fidelity is the best at doing that [Music] you

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Length: 31min 1sec (1861 seconds)

Published: Sat Jul 09 2022