OK, is it just me or are those hedge funds that have been short-selling VW shares completely rubbish? Look what happened. They bet on VW going down. VW went up, because Porsche had bought a big stake. There weren’t enough shares left in circulation for them to settle their bets, so the price went sky-high.
For a few hours, the VW Group was, by market capitalisation, the most valuable company on earth.
But look. Any fool would know that VW shares were never going to fall very far or fast. So why were the hedge funds shorting?
Sure, VW is a car company and car companies are having some pretty torrid times at the mo. (GM’s share price dipped to below what it was in 1950.)
But VW is comparatively well placed. Its sales have been on an upward path. Even in September, when even the likes of Toyota wobbled, its sales were slightly up. Transaction prices are OK, as most of its cars are seen by buyers worldwide as premium versus their competitors.
And it’s got some very suitable-for-the-times cars coming up. Next year the new Polo launches, the little Up after that.
So for sound reasons of the underlying strength of the business, VW shares should be doing OK.
Further, everyone knows Porsche has been stalking VW for years now. It’s been buying every share that’s going, right up to the limit specified by the VW Law (which is a means to prevent a hostile takeover). And it’s been busy looking at ways to end or circumvent the VW Law and increase its holding even more.
That’s two reasons why, surely, only a mug who knows nothing about the car business would short-sell VW. But there you are: all these financial whizz-kids in the hedge funds just did exactly that. And lost up to £18bn for their trouble.
VW is one of those car companies which shares will always will go up. Even if Porsche buys 99.9% of VW shares it will always be a German superpower. Sure they may have ups and downs, but as Mr Horrell was saying about GM, but it will no doubt get through it.
VW’s shares might drop if it keeps building Veyrons and loses money in more Scirocco/GTI situations, going broke.
$18bn. I had to re-read that bit twice and now can’t stop laughing.
Sorry Dav. I deprived you of some laughter. Originally I typed $18bn. I meant £18bn. (I’ve changed it now).
The magnitude of the expected share price drop doesn’t really matter. By borrowing a lot of money (i.e. being leveraged) they could magnify a 1% change in share price into a 20-odd percent gain for themselves. Unfortunately this works with losses too, so when things go bad they really really go bad.
Those stock market buggers should be thrown to the streets and shot. And then hanged, for good measure. After that a good exorcism, burn the bodies and throw the ashes into a nuclear reactor, that’ll teach them
At least by doing that we won’t have to buy their books of how did they manage fail so badly and how it was not their fault…..jesus!
lol (i think that says it all really)
apparently its more than 18bn quid, might be as high as 22bn. Will be the end of some hedge funds. anonymous (above) has the right of it, they can usually make a lot of money by betting the direction of share price change, or any other commodity. However, if they get it wrong leveraging means they won’t/can’t have the cash to cover it, i.e. they go tits up
I could think of better things to do with 18 billion pounds…
Yeah Sam, first one to pop in my head, i’d join M Mosley in one of his “costume parties”, just for the kicks, hehe
“Any fool would know that VW shares were never going to fall very far or fast”
Ha! Investors aren’t your usual-quality fool… remember how we baffled ‘em with technobabble and anyone with a website automatically got handed a million dollars?
VW will still survive…
In fact no-one can ever estimate how much shares there are still left in circulation, for example, even big banks are now below trading average because of the current turmoil. Hedge funds looked at the financial report of Volkswagen and came to the conclusion that the share price was to high (fairly obvious that one), with a P/E of over fifty at some time. Even so, they too knew that Porshe was going to buy these shares, but, as Porsche has a limited cash reserve ($2 bn. , I know, relatively limited…). It might pause its stock purchasing programme for a while, giving the stock markets a chance to cool off. This eventually happened, but in the meanwhile, the supply of shares dried up, unexpectedly, because Porsche did not stop purchasing VW shares, thus leaving the Hedge fund managers frantically buying back VW shares at any price to limit their losses. It is, in fact Porsche which is behaving irrationally here, because it should have seized the opportunity to dump it’s shares of VW, creating panic under the other shareholders, who start dumping their shares too, and then Porsche could buy back these shares at much lower prices. Maybe Porsche suspects that there are other buyers of VW shares…
yeah, hate porsche now, I will never put that wallpaper again in my desktop. while they deserve that.
Я считаю, что Вы ошибаетесь. Могу это доказать. Пишите мне в PM, пообщаемся.
I apologise, but, in my opinion, you commit an error. Write to me in PM, we will talk.
VW are a bit bland though aernt they? so why do people buy them? to me the VW Golf is Jeremy Clarksons Vauxhall Vectra
I don’t know If I said it already but …Excellent site, keep up the good work. I read a lot of blogs on a daily basis and for the most part, people lack substance but, I just wanted to make a quick comment to say I’m glad I found your blog. Thanks,
A definite great read….
Обязательно попробую. Когда-то пытался заняться, но что-то не вышло