Edited: The stock market was a wild and largely unregulated place when the century began. In 1901, much of the nation watched in befuddlement as the price of Northern Pacific soared without apparent reason, then plunged.
The rail line had been the subject of an unannounced takeover war, in which two powerful groups -- one led by J.P. Morgan and the other by Edward Harriman -- tried to secure control by buying shares in the open market. When the battle was over, speculators were ruined as losses on Northern Pacific shares forced the liquidation of other stocks, causing the entire stock market to plunge. "Disaster and Ruin in Falling Market," read the headline in The New York Times. "Panic Without A Parallel in Wall Street."
In those days, companies were free to give investors as much, or as little, information as they wished. There were no generally accepted accounting principles, so the profit figures that were issued were of questionable quality. Dividends -- real cash payments to shareholders -- were the principal measure of a company's soundness.
That began to change in the late 1920s, as individual investors poured into stocks for the first time, and the lure of capital gains began to take hold. There was still relatively little regulation, and there were plenty of reports of "pools" that manipulated stock prices. Many investors concluded they wanted to make money by trading with the pools, and reports that a pool was involved became a sure way to get a stock moving.
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