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Wall Street Changes Its Ways, and Two Consumer Giants Get Started

On this day in economic and business history...

The New York Stock Exchange (UNKNOWN: NYX.DL  ) sought to assuage uncertain investors when it teamed with the Securities and Exchange Commission to promote a sweeping set of trading reforms on Oct. 31, 1938. The Dow Jones Industrial Average (DJINDICES: ^DJI  ) was then near the top of a short rebound within the volatile latter half of the Great Depression, which had increased the downtrodden index's value by 53% from a springtime low. However, this recovery paled in comparison to the one that took place during President Franklin D. Roosevelt's first term, as well as the roaring bull market that had preceded the Great Crash. Investors, it seemed, were no longer willing to believe in stocks for the long term. Something had to be done to restore confidence in the markets.

At the time, Wall Street insiders were still buzzing over the highly publicized downfall of former stock exchange president Richard Whitney. Whitney had been prosecuted after it was discovered that he had used his position to embezzle significant amounts of money and securities from industry insiders and other financial heavyweights. The reforms, drafted largely in response to Whitney's actions, would soon be adopted by other stock exchanges throughout the country. You may recognize some of these reforms as vital cogs in the operation of the modern market:

  • Quarterly financial statements became standard for publicly traded companies, and yearly independent audits were required of all public companies filing annual reports.
  • Several rules significantly tightened the restrictions on margin accounts and enforced greater disclosure of any unsecured loans.
  • Brokerage firms were significantly restricted in what they could do with customer funds and securities, separating the resources owned by customers from that of the firms.
  • Conflict-of-interest rules prevented exchange officials from participating in investigations of any issue in which they held a financial interest.
  • Brokerage firms were required to regularly report on the contents of their trades.

These reforms gave the 4-year-old Securities and Exchange Commission additional levers to pull to create greater transparency in the public markets, but it wasn't enough to save the Dow from another minor bear market that began several days later. However, after the close of World War II, millions of investors began to express a renewed faith in American exchanges, which were no longer able to keep most of their machinations hidden behind various curtains.

One great big gamble
President Abraham Lincoln's proclamation made Nevada's statehood official on Oct. 31, 1864.

The New York Times gave its readers a detailed look at the new state on the date of its admission, noting its size of "about ten thousand square miles ... appropriated from the northern extremity of California, and about seventy thousand from Western Utah." The Times also pointed out that "no region in the world is richer in argentiferous leads" -- a fancy way of saying that it had a lot of silver -- and the state's ample salt and quartz deposits were also praised.

The gambling haven we know today didn't take shape until after the Great Crash of 1929. Nevada legalized gambling in 1931, and the first casino cropped up shortly afterward as an expansion of the Pair-o-Dice nightclub in Las Vegas. The first casino on the world-famous Las Vegas Strip was El Rancho Vegas, which operated for about 20 years before it was destroyed in a fire.

Today, Nevada regularly generates more than $1 billion per month in gambling revenue, with approximately half coming from the Strip. Many of the largest Las Vegas casinos, including the Mandalay Bay, the Bellagio, and the MGM Grand, are owned by MGM Resorts. In terms of combined square footage, the Venetian and Palazzo complex, owned by Las Vegas Sands, is Las Vegas' largest, besting the second-biggest complex, which contains the Wynn Las Vegas and Encore casinos, by more than 50,000 square feet.

But Nevada isn't just about gambling. The state, hailed as rich in argentiferous leads 150 years ago, remains one of America's most important sources of silver today, behind only Alaska in annual production. The Nevada Bureau of Mines and Geology counts Coeur d'Alene Mines as operator of the single-largest silver mine in the state, Coeur Rochester, which produced slightly more than 2 million ounces of silver in 2010. However, Newmont Mining was the state's largest aggregate producer by far, with 2.8 million ounces of silver mined from its Phoenix, Midas, and Twin Creeks mines.

It goes together like soap and candles
William Procter and James Gamble signed a formal partnership agreement to create Procter & Gamble (NYSE: PG  ) on Oct. 31, 1837, six months after coming together under one roof as business associates. Candlemaker Procter and soap maker Gamble each contributed $3,596.47 to form the company, which would be equal to about $90,000 today. Little did they know that this modest beginning would give rise to the world's largest consumer-products company.

After 175 years in existence, Procter & Gamble, with an initial capitalization of $7,192.94, had grown into a multinational conglomerate worth $190 billion. That works out to an annualized growth rate of 10.3% for nearly two centuries -- a great example of investing for the long long term.

Want to learn more about P&G's history? Click here for a more complete corporate timeline.

For all your soap- and candle-buying needs
Wal-Mart (NYSE: WMT  ) formally incorporated exactly 132 years after P&G, on Oct. 31, 1969. Sam Walton's supersized store experiment was already seven years old by this point, but Wal-Mart's rapid growth -- there were already 44 Wal-Marts in operation by the end of 1969 -- put serious pressure on Walton's finances. Walton's solution was incorporation, followed by an IPO a year later to raise much-needed cash for further expansions.

Wal-Mart's expansion became a boon to consumer goods companies like P&G, which benefited from Walton's superior supply chain and relentless focus on value. Since 1969, Wal-Mart has been one of the best-performing stocks in the entire market, as shares grew by more than 900,000% since the company's IPO.

Want to learn more about Wal-Mart's history? Click here for a more complete corporate timeline.

Tomorrow's consumer champions
P&G and Wal-Mart were two of the greatest champions of retail goods over the past century, but their tried-and-true business models have been updated by a few 21st-century pioneers in the biggest retail paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the "3 Companies Ready to Rule Retail" in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

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9/28/2016 10:20 AM
^DJI $18245.35 Up +17.05 +0.09%
NYX.DL $0.00 Down +0.00 +0.00%
NYSE Euronext CAPS Rating: *****
PG $88.75 Up +0.39 +0.44%
Procter and Gamble CAPS Rating: ****
WMT $71.96 Down -0.37 -0.51%
Wal-Mart Stores CAPS Rating: ***