How Porsche made billions..

[shauncr91]

http://news.bbc.co.uk/1/hi/business/7843262.stm

Very interesting article, didn't know much of the stuff in there.

Might be interesting to a lot of other people on here too

 

[Sone]

i expected Nazi gold

 

[Sukh]

I knew they made millions having the biggest mark up over costs of any super-car builder.

But I think financially, this was genius, short sellers cannot really complain as they are taking the risk and its all part of the game. Feel more sorry for the people's money they were playing with.

 

[JRS]

It still makes me laugh* that all those people managed to get caught out by what Porsche did.

Porsche buys stake in VW.
Porsche increases stake in VW.
Porsche further increases stake, saying that they intend to be in a position to take over the company at a later date.
People gamble on VW shares dropping.
Porsche further increases stake in VW.
VW share price goes through the roof.

And then people start crying foul saying that Porsche were sneaky. Sneaky? They did everything short of taking out full-page adverts in every single major newspaper to get the message out about what they were doing! I knew what Porsche were up to back in March 2005, how the hell did the short-sellers not see it?!

***edit***

* - though it was a shame that Merckle bloke topped himself over it.

 

[platypus]

Porsche conducted a brilliant, if not obvious, piece of stock market strategy, and the greedy Hedge fund managers bet against them and lost.

Which is why they are crying now.

 

[rypt]

Some hedge funds got screwed, good - just what they deserve.

 

[thepeganator]

Go Porché

 

[SC04]

Buying out Volkswagen to improve their research & technology. I guess there's more to those boring girly VWs than meets the eye

 

[ironman]

Some hedge funds got screwed, good - just what they deserve.

Why do they deserve it?

 

[Gilly]

I don't think they deserved it, but the little I know of hedge funds is that you can lose everything in contrast to share dealing, and the old adage 'only gamble with what you can afford to lose'.

Hedge funds go against that.

 

[ironman]

I don't think they deserved it, but the little I know of hedge funds is that you can lose everything in contrast to share dealing, and the old adage 'only gamble with what you can afford to lose'.

Hedge funds go against that.

Hedge funds do manage risk and do not go against that at all, traders don't gamble, gamblers gamble. You can lose everything regardless of your vehicle for trading, risk needs to managed across the whole board.

 

[JRS]

Why do they deserve it?

They deserved it for being utter retards who weren't reading the papers back in March 2005. The FT article is still on the web that has Porsche's grand plan detailed - Porsche announce what they are doing well ahead of time, the short-sellers completely ignore that, and get shafted. And now they want not only sympathy, but also sanctions against Porsche for doing what they did.

**** THAT.

At least there's a chance none of these traders will try something so flagrantly stupid again. As I said earlier, it's a shame that Adolf Merckle killed himself after losing money in the fracas, but I've got ****-all sympathy for the rest of the daft sods.

 

[cossey3]

it was not quite as simple as that.

porsche owned ~42% of VW and had arranged undisclosed option to buy nearly 32% more to make a total of just over 74%.

the hedge funds knew porsche was buying shares but did not expect them to be able to buy that much in one go which was largely true as they did have the money to exercise all those options.

then on a sunday after the story had been broken in the FT Porsche admitted the size of their options so the hedge funds which had shorted the shares had in effect sold them to porsche who would not going to sell them again so the hedgefunds had to buy many more shares back than were available to return them to their original owners but they couldnt hence the big spike in price.

porsche then a couple of days later sold some of the shares they had at a very large profit which has allowed them to buy more shares now the price has returned to its true market value.

it was very clever but may be borderline illegal under market munipulation rules.

ultimately by betting the wrong way the hedgefunds have paid for porsche to buy vw. particularly ironic as the hedgefund managers were one of porsche's biggest customers and the profits from the vehicles sales started this all off.

 

[JRS]

it was not quite as simple as that.

Maybe not, but it wasn't that much more complicated....

porsche owned ~42% of VW and had arranged undisclosed option to buy nearly 32% more to make a total of just over 74%.

Indeed. Just like they said they planned to do quite a while back.

the hedge funds knew porsche was buying shares

I'm not even sure they knew that, given how big a screw-up they made

but did not expect them to be able to buy that much in one go which was largely true as they did have the money to exercise all those options.

Not at that precise moment, no. But they did have a game plan that involved them exercising those options down the line - and as I keep pointing out, they weren't keeping that game plan secret.

then on a sunday after the story had been broken in the FT Porsche admitted the size of their options so the hedge funds which had shorted the shares had in effect sold them to porsche who would not going to sell them again so the hedgefunds had to buy many more shares back than were available to return them to their original owners but they couldnt hence the big spike in price.

porsche then a couple of days later sold some of the shares they had at a very large profit which has allowed them to buy more shares now the price has returned to its true market value.

Yep. Shock as Porsche say they are going to do something, and then do it. Certainly shocked the short-sellers.

it was very clever but may be borderline illegal under market munipulation rules.

Why? Under German law, they were under no obligation to tell folks what they were doing. And yet they did, in 2005.

ultimately by betting the wrong way the hedgefunds have paid for porsche to buy vw.

The thing is, people are making out as if Porsche planned for the short-sellers to obligingly screw the pooch and allow Porsche to buy up all those VW shares. I'm sorry, but there is no way that Porsche said to themselves back in 2005 "I know, lets engineer an absolute panic in September 2008 and make lots of money to fund our takeover of Volkswagen".

The short-sellers ignored the gigantic flashing neon signs that were pointing out just what Porsche were doing. And they've paid the price. They also probably paid for a bloody good Christmas party in Stuttgart!

 

[cossey3]

Not at that precise moment, no. But they did have a game plan that involved them exercising those options down the line - and as I keep pointing out, they weren't keeping that game plan secret.

Porsche said has said fairly recently before this happened that whilst they were not planning to buy VW they were not going to buy 75% at that time so the market thought that there were going to be shares still available when they shorted. As porsche was buying these through options the market couldnt see the lack of liquidity until it was too late to unwind their positions. ulimately though this is the risk you take when shorting shares.

Why? Under German law, they were under no obligation to tell folks what they were doing. And yet they did, in 2005.

no them buying the company on the queit is perfectly legal but if it could be proved that they deliberately timed their announcement of their true position to profit from their options due to the lack of liquidity then they could be guilty under market abuse laws.

personally I applaude them for what they have done and hope that the regulators find no case against them. its alway nice to see that some one can beat the hedgefunds at their own games from time to time.

 

[mjt]

Go Porché

you what? inserting accents willy nilly doesn't make you look clever..

 

[Adrianr]

you what? inserting accents willy nilly doesn't make you look clever..

He lost it at the spelling to be honest..

 

[Jokester]

Made me laugh when I read about this at lunch time.

Given the amount of short selling on VW at the time, the hedge funds must have been borrowing stocks and effectively selling them indirectly to Porsche with the intention of buying them back at a later date when the price dropped, except a, the price didn't drop and b, Porsche weren't going to be selling.

Brilliant.

 

[rypt]

I don't think they deserved it, but the little I know of hedge funds is that you can lose everything in contrast to share dealing, and the old adage 'only gamble with what you can afford to lose'.

Hedge funds go against that.

They did deserve it. Short selling is a retarded practice.

Borrowing shares from someone else, with money you don't have in order to sell the shares and then buy them back at a profit and return them to the original owner while making money.

That is NOT what the stock market was invented for.