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Perhaps the author should also made it clear that Porsche took advantage of poor securities laws in Germany rather than showed any 'financial genius'. In US an
by 1gor 18y ago
Perhaps the author should also made it clear that Porsche took advantage of poor securities laws in Germany rather than showed any 'financial genius'.
In US and UK there are explicit regulations forbidding secretly building a stake in a company. This 'hack' is illegal here just like insider trading is.
- swombat 18y agoIndeed - and it should be illegal. The lack of transparency means that hedge funds will now think twice before investing in a company that's based in that jurisdiction.
- markessien 18y agoNot before "investing". Before speculating on the shares of companies in the region. The investors are only the people who purchase the stock as sold from the company - and those people have nothing to lose by this affair.
- eli 18y agoI don't quite follow. Isn't buying shares de facto "investing" ? (You may have a point on the shorting of shares, but that serves a purpose too; to devalue overpriced assets)
- potatolicious 18y agoI think he's making a distinction between "classical" investment and Wall Street-style investment (for lack of better terms). There's an ideal that an investor puts money into a business that he thinks has potential to succeed (e.g. VC funding), and reaps his rewards through the success of the business. Then there are others who invest purely as stock price speculation, and is generally disinterested in the actual goings-on of the business beyond what is likely to impact short-term stock price.
- eli 18y agoI see what you're saying, but I don't perceive a meaningful difference between those two classes beyond, perhaps, what's in the investor's head. In both cases you're investing money in a company because you think the value of that company is likely to rise in the future. And in both cases the company benefits from that investment. I agree that many investors are too focused on the short-term... but if they think they can make more money by selling a stock and reinvesting elsewhere rather than holding onto it for years, can you really blame them? The whole point of investing is to make a return on your principal.
- markessien 18y agoA company sells 1000 shares. All get sold. Any further rrselling of those shares aka the stock market does not benefit the company.
- eru 18y agoAt least not directly. E.g. it's easier to sell more stock or sell a bond with a healthy stock price. Viewed another way, the stock _is_ the company.
- nradov 18y agoWhy would the German government care about what happens to hedge funds who get screwed by speculating with stupid unhedged short bets in the secondary market? That has no relationship to actual investing in German companies.
- jayp 18y agoI am not sure you understand how hedging works. You don't go short and long on the same stock to hedge. You generally take one position (long or short) on the stock you are speculating on, and you take the opposite position with stocks in its peer group to protect against swings in the industry. The basis of the hedge is that stock performance is correlated within sub-industry. With a short squeeze like the one of VW stock, this type of a hedge wouldn't have helped. But that was not my main point for this reply. The German regulators should care about financial transparency, because even hedge funds (and even naked speculators) provide an counter force to the natural tendency of the stock market to always go up. if shorting was not allowed, the market has a natural tendency to go upwards. everyone benefits from the market always going up -- the buyer, the seller, the company, etc. a buyer can always sell the stock for more later. no one would benefit from a price drop. however, the stock price growth may not have anything to do with reality of company's books. shorting stocks helps keep the stock at a reasonable price point because when the stock price rises unreasonably, plenty of people would like to gain from its pending downward spiral. as an example, look at china. no shorting is allowed there. their stock market went up, up, up. the balance shorting provided was not not presence. when people realized how vastly over rated the stock market was, it got hit. hit hard. now, it is one of the hardest hit market out there. shorting (and other financial maneuvers) only work with greater transparency of information. note that the hedge funds did take a big gamble and paid the price. I do not feel sorry for them. (Anyway, I am sure I didn't do a thorough job of explaining the benefits of shorting and transparency.)
- nradov 18y agoNo, I understand exactly how it works. If you take a short position by borrowing a stock there is always a small but non-zero risk of completely blowing up due to something like this. It's playing financial Russian roulette. Making the market more transparent reduces the risk a little more, but it's still non-zero. Any trader with common sense would have hedged the downside risk using other derivatives. For example, he could have purchased enough deep out-of-the-money call options to cover all the shares he borrowed. No one is suggesting that shorting or speculation ought to be banned. However I remain unconvinced that requiring Porsche to immediately disclose their VW ownership stake in this case would have had any benefit for the German economy as a whole.
- run4yourlives 18y agoOther investors are no doubt very happy that Porsche did this. They reaped the same benefits as the company did.
- eru 18y agoWas it really that secret?