The Radio Corporation of America Corner (1928)
William C. Durant was a millionaire in the horse-drawn carriage business before taking over the Buick Motor Company. He then created General Motors and Chevrolet. In 1927, William Durant decided to manipulate the share price of RCA, Radio Corporation of America. He noticed that the bulk of shares RCA had issued were held by RCA itself, General Electric, Westinghouse and several other big corporations. More importantly, these shares were not traded — they were not in float. In addition, there was a lot of hype in the market for RCA since its radio transmission equipment was considered a revolution in communications technology at the time.
Durant started a pool to accumulate the RCA stock. As a result of the feverish purchases of the Durant manipulation group, they soon bought all floating shares and all shares sold short. Their trading gen- erated a daily turnover of more than 500,000 shares, while officially there were only 400,000 shares actually available for purchase in float. In other words the public was buying more shares than were actually available and the market skyrocketed. This was because of the enor- mous order imbalance resulting from high demand and restricted supply of shares.
The pool forced the market into a technical corner in March 1928. The corner was unintentional, because the Durant group was simply trying to manipulate the price of the stock upwards to make a lot of cash — they weren’t trying to gain control of the firm. They never controlled a large part of the shares and could never call the shorts to settle. The short sellers suffered, though; from March 12, the bears started struggling to settle their accounts and the price skyrocketed more than $61 in just four days. The enormous profit Durant extracted from this corner helped him form General Motors.
The lesson here is that there is so much potential profit in stock manipulation — enough in this case to fund the start of a major motor company like General Motors — that it is hard to imagine a stock market free of manipulation. I don’t care how much the government at least acts like it attempts to regulate the stock market, it is simply out-gunned by the vast wealth of inside corporate executives and hidden insiders behind the scenes. Democrat- ic and Republican campaigns alike are largely financed by inside corporate executives. Elected federal officials know better than to bite the hand that feeds them — individual shareholders unwillingly put up the money but it is the insider that writes the check when re-election rolls around. Learn to spot long-term stock price patterns that seem intended to discourage the public when prices are low and encourage the public to dive in on the rise.
– Doc Brown
BIO: Doc Brown is a national expert on the stock market. His courses “How to Make a Million Dollar Portfolio from Scratch” at the Oxford Club is a national bestseller. Dr. Brown’s research appears in some of the most prestigious academic journals in the field of finance. See Journal of Financial Research and Financial Management. Scott is an associate professor of finance in the Graduate School of Business at the University of Puerto Rico.
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