A Porsche ran over my hedge fund!

mike65

Proof of the speculative, dice throwing madness of the markets

http://news.bbc.co.uk/1/hi/business/7697082.stm

On Sunday, Porsche announced it controlled over 74% of VW shares.

VW's home state of Lower Saxony owns another 20%.

The carmaker's shares peaked at 1,005 euros, valuing the company at 296bn euros ($370bn; £237bn), which is well over Exxon Mobil's $343bn value.

Last Friday, the shares closed below 200 euros.

The panic buying was caused by traders who had short-sold VW shares desperately trying to buy them back so they could close their positions.

'Buy like mad'

Before Porsche's announcement, many traders had been betting on VW's shares falling.

They had borrowed VW shares and sold them in the market, planning to buy them back when the shares had fallen, return them to the lender and pocket the difference.

But what actually happened was that the shares rose as a result of Porsche's effective takeover and the traders found themselves forced to buy the shares at any price to close their positions.

"Each and any short-seller in the world is trying to close up their position and there is no way they can do it, except for trying to buy like mad," said Heino Ruland, an analyst at FrankfurtFinanz.

As an indication of how silly the market valuation is, Exxon last year made profits of $41bn on sales of $390bn. It employs 80,800 people worldwide.

Volkswagen managed profits of about $8bn on sales of $136bn.

More detail here

I won't shed any tears for the fund managers.

Mike

silverharp

Glad to see there is finally proof , its been a tough case to get the evidence together up until now ;-)

Its more an exchange failure, ideally they should have suspended trading in the comany but must say not very clever shorting a stock when another company owns a large stake in it.

Also the price of the stock on a particular day does not value the company, and saying that VW was the most valuable company in the world is meaningless.

kmick

Brilliant Porsche determined that about 12% of the shares were on loan and needed those shares so...."It said it was announcing its plans because the number of short positions in VW were considerably higher than it expected and it consequently wanted to give investors the chance to unwind their bets "without haste and without greater risk.""

So essentially they shafted the short seller. There may have even been cases where they owned the shares that were on loan?

Thomas_S_Hunterson

silverharp wrote: »

Its more an exchange failure, ideally they should have suspended trading in the comany but must say not very clever shorting a stock when another company owns a large stake in it.

That's all well and good in hindsight...

daveirl

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silverharp

daveirl wrote: »

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spot on, I caught a report on Friday that the exchange was considering reducing the weighting of VW. That is not something an exhange should say thus creating more uncertainty.