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The Mother of All Squeezes
How Volkswagen went from being on the brink of bankruptcy to the most valuable company in the world in two days
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How Volkswagen went from being on the brink of bankruptcy to the most valuable company in the world in two days
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1/ At the peak of the 2008 financial crisis, Volkswagen was considered a very likely candidate for bankruptcy.
Heavily indebted and already financially struggling before 2008, with car sales expected to plummet due to the ongoing global crisis.
Heavily indebted and already financially struggling before 2008, with car sales expected to plummet due to the ongoing global crisis.
2/ With GM and Chrysler filing for bankruptcy in 2009, shorting the VW stock would seem a safe bet.
If you are not familiar with stock shorts and short squeezes check my thread below. https://twitter.com/itsKostasOnFIRE/status/1354400942871994369?s=20
If you are not familiar with stock shorts and short squeezes check my thread below. https://twitter.com/itsKostasOnFIRE/status/1354400942871994369?s=20
3/ On October 26, 2008, Porsche announced it had increased its stake at VW from 30% to 74%.
This was a surprise to many who were led to believe that Porsche wasn't planning a takeover of VW, based on the company's announcements.
This was a surprise to many who were led to believe that Porsche wasn't planning a takeover of VW, based on the company's announcements.
4/ Before the announcement, the short interest was approximately 13% of the outstanding shares, a number considered relatively low.
Porsche had a 30% stake, the Lower Saxony government fund held 20% of the shares, and another 5% was held by index funds.
Porsche had a 30% stake, the Lower Saxony government fund held 20% of the shares, and another 5% was held by index funds.
5/ Due to VW's high weighting in the German index (DAX), the VW stock comprised 17% of the total index at the time.
This left 45% of the available shares to cover for the 13% of short shares.
However, with Porsche acquiring an additional 44% the outstanding shares were only 1%.
This left 45% of the available shares to cover for the 13% of short shares.
However, with Porsche acquiring an additional 44% the outstanding shares were only 1%.
6/ Porsche in their statement said that they “decided to make this announcement after it became clear that there are by far more short positions in the market than expected.”
7/ They added that “the disclosure should give so-called short-sellers, meaning financial institutions which have betted or are still betting on a falling share price in Volkswagen, the opportunity to settle their relevant positions without rush and without facing major risks.”.
8/ This triggered a panic among short-sellers trying to rush to the exits, after Porsche's announcement on a Sunday with markets closed.
Due to the short squeeze, VW's stock rose 66% on Monday and skyrocketed to more than $1,000 on Tuesday.
Due to the short squeeze, VW's stock rose 66% on Monday and skyrocketed to more than $1,000 on Tuesday.
9/ At that moment, VW was valued at a market cap exceeding $420 billion, surpassing Exxon Mobil and Microsoft.
In a single day, it became the most valuable company in the world.
In a single day, it became the most valuable company in the world.
10/ However, on Wednesday, Porsche provided 5% of its shares to the short-sellers, bringing the price down by 50%.
By December, it had returned to its normal levels, in the mid-200s.
By December, it had returned to its normal levels, in the mid-200s.
11/ This trade shouldn't surprise anyone familiar with Porsche's activities.
The company was basically a hedge fund selling luxurious cars on the side.
In 2007, 3/4 of the company's profits were from trading derivatives and the rest from selling cars.
The company was basically a hedge fund selling luxurious cars on the side.
In 2007, 3/4 of the company's profits were from trading derivatives and the rest from selling cars.
12/ From the 2008 VW squeeze, Porsche profited by more than $8 billion, with its CEO, Wendelin Wiedeking, pocketing a $100 million bonus.
The hedge funds that were involved in shorting the VW stock incurred collective losses exceeding $30 billion.
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The hedge funds that were involved in shorting the VW stock incurred collective losses exceeding $30 billion.
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For more educational threads on financial independence and investing for beginners see below for a collection of threads 
https://twitter.com/itsKostasOnFIRE/status/1345790210441928708?s=20
https://twitter.com/itsKostasOnFIRE/status/1345790210441928708?s=20
