Matched Sales and Tape Painting

     

     The stock market crash of 1929 was fueled by many things, two of them were the practice of Matched Sales and “Painting the Tape”. One of the masters of this was a man named Michael Meehan, a stock speculator, who reportedly made up to $20 million in 1928, the year before the crash. He was also and early investor in Good Humor company.

     Michael Meehan would accumulate a large portion of a company’s stock in accounts of relatives and companies that he controlled. He would then “match” prearrranged  sales and buys between the accounts. The sales, of course, were at ever increasing prices. This created the illusion of a hot stock. 

     The series of trades at increasing prices was reported on the ticker tape. The trades would spark interest in smaller investors and then they would buy additional stock and drive the price up. Once the stock was sufficiently inflated, he dumped his shares and collected a fortune. As I’m sure you’ll agree, he didn’t possess any actual skill in carrying out this scheme. Unless, of course, you see “no remorse, empathy or ethics as a skill. The type of manipulation was completely legal until 1934.

     In 1935, Meehan planned to manipulate the price of Bellanca Aircraft stock with this process of matching orders. Within a few months, the public had followed Meehan into Bellance stock and the share price went from $1.75/share to $5.00/share. As a result of this, the SEC decided to investigate for possible stock manipulation and Meehan holds the distinct honor of being the first individual that the SEC ever prosecuted. He had many others follow in his footsteps, of course.

     These types of schemes require visibility for the stock trades, which was much easier to accomplish back then as there was a fraction of the stocks than there are today and the volume of shares traded was also minimal compared to today’s market.

      If you invest in quality companies that have established a protective business and have solid financials, you can focus on the long term and not be overly concerned with the day to day fluctuations in price that stock manipulator’s rely upon. If on the other hand, you follow blind tips and see the stock market as a casino, you would fit quite nicely into the scams perpetrated by people so long ago.