The Most Valuable Company in the World Today Is …
Who doesn’t like a day when stock markets around the world spike, including a U.S. jump of 10 percent?
Well, short sellers don’t like it, since they’re forced to buy back stock at a higher price than they planned. In fact, it was just such a short squeeze that produced one of the most extraordinary wrinkles of this truly extraordinary period of market activity.
From The Times:
And the DAX in Frankfurt was 11.2 percent higher. German shares were lifted by Volkswagen, which soared 95 percent, making the German automaker, with a market value of $367 billion, the most valuable company in the world — at least for Tuesday. The rise in the automaker’s shares appeared to result from a phenomenon known as a “short squeeze.”
Investors who had sold Volkswagen shares short were forced to hurriedly repurchase them after Porsche said Sunday that it had raised its stake in V.W. to 42.6 percent from 35 percent, and that it had options for another 31.5 percent.
Exercising those options would put Porsche near 75 percent ownership, a level at which it could control every major decision at Volkswagen.
In a short sale, an investor sells a borrowed stock with the hope of repurchasing it later at a lower price, pocketing the difference as profit. Volkswagen rose 123 percent on Monday.
So the next time someone tells you that the auto industry is going down the tubes, you can now present countervailing evidence. This might lead some to conclude that the auto industry, on balance, is perfectly healthy — just like the story about the two economists who go deer hunting:
They see a buck and the first economist shoots, missing by 10 yards to the left. The second economist shoots and misses 10 yards to the right. They shake hands in hearty congratulations.
“On average,” one says, “we got him right between the eyes.”