In the same month thirteen years ago, the Frankfurt-listed shares of Volkswagen increased by more than four times in only two days, briefly elevating the German automaker to the position of most valuable firm on the planet.
In the four days following the stock’s peak on October 28, 2008, it fell 58%, and by September of that same year, the shares had fallen 70% from their peak, giving up the majority of the squeeze.
Even though the Volkswagen short squeeze occurred more than ten years ago, day traders might still benefit greatly from this particular stock market incident.
Let’s examine the meanings of “short selling” and “short squeeze” before delving into the 2008 VW short squeeze.
In This Article...
What was the 2008 stock rate for Volkswagen?
Volkswagen’s Frankfurt, Germany-listed shares more than quadrupled in value in just two days in October 2008, briefly making it the largest company in the world. Following Volkswagen’s peak on October 28, 2008, the stock sank 58% in four days. A month later, the stock had dropped 70% from its peak, recovering much of the loss experienced during the squeeze.
Which stock squeeze caused the most damage?
One essential aspect of the stock market is uncertainty. As speculators make wagers based on hazy projections of future price fluctuations, prices rise and fall. These price changes typically occur gradually. But occasionally, the price might change dramatically in a matter of days.
Unexpected events, such wars or pandemics, might be the cause of these jarring price changes. They might also result from unexpected developments or “black swan” catastrophes. As investors rush to react, the resulting short-term volatility may result in abrupt price shocks.
Not all of these price shocks cause price collapses. The biggest price shocks in stock market history are listed below, along with winners and losers in each case.
Key Takeaways
- Unexpected events or the release of fresh information to the market can cause abrupt changes in stock prices.
- After-hours trading saw video game developer Zynga lose $3.03, primarily because of its connection to Meta (previously Facebook), whose stock price plummeted three months after its own IPO.
- When Porsche abruptly disclosed that it owned a controlling stake in the business in 2008, Volkswagen was a big winner.
- A stunning short squeeze that affected GameStop (GME) in 2021 cost some hedge firms billions of dollars.
- The largest single-day loss in the history of the stock market was suffered by Meta Platforms Inc., who lost $232 billion in a single day.
What caused a rise in Volkswagen stock in 2008?
Short sellers started to panic, and the massive short squeeze caused by the mismatch in supply and demand caused its share price to increase from 210.85 to more than 1,000 in less than two days. On October 28, Volkswagen did, albeit for a very brief period, surpass Apple as the largest business in the world by market value.
Who has the majority of Volkswagen stock?
Shareholder Organization
- Porsche Automobil Holding SE, 31.4%.
- 27% of institutional investors are foreign.
- Qatar Holding LLC, 10.5%.
- State of Lower Saxony, 11.8%.
- 16% are other private shareholders.
- German institutional investors made up 3.3%.
Why does Volkswagen have two stocks?
We at the Lab are well familiar with the auto industry. Our first ever published piece was about Daimler’s sum of the parts, and we recently commented on the performance of the European auto majors (Mercedes, Renault, and Ferrari) in the second quarter. We continue with Volkswagen (OTCPK:VWAGY) and its upcoming Porsche IPO today in a very similar manner. We should take note of the following before getting into the specifics:
- Volkswagen AG is a holding company with numerous brands and industrial units (many of these entities are run independently). One of these organizations is the Porsche Corporation. Volkswagen AG currently owns Porsche AG in its entirety.
- Another listed firm with no manufacturing operations is Porsche Automobil Holding SE. This business is a holding, and Volkswagen AG is its biggest investor.
- There are two types of shares in Volkswagen AG and Porsche Automobil Holding SE: voting ordinary shares and voting preference shares.
As we anticipate the half-year results, it’s important to remember that Volkswagen’s market capitalization is currently 85.4 billion. The most recent speculations claim that Porsche’s initial public offering will be one of the biggest in Europe. Indeed, according to Bloomberg, the sports car manufacturer would have really gathered a demand greater than the offer during the pre-order process, valuing the company at between 60 billion and 85 billion.
The operation is anticipated to happen in the first week of September after receiving the go-ahead from the supervisory board, despite the markets’ negative phase and worries over Europe’s economic future. Volkswagen will continue to control the majority and only Porsche preferred shares without voting rights will be sold. More information:
- Porsche AG’s capital will be split into 50% ordinary shares (voting) and 50% preference shares using the standard two-share structure (non-voting).
- The present Volkswagen stockholders will get a special dividend payout.
- The Germany Stock Exchange will list 25% of the Porsche AG preference shares.
- At a 7.5% premium over the price of the preference shares in their initial public offering, 25% plus one of the ordinary shares will be sold to Porsche Automobil Holding SE.
- While Volkswagen will (again) control the majority of Porsche AG’s ordinary shares (minimum 75% holding) and preference shares (75 percent plus one share).
In addition to the IPO consideration, Porsche AG released standalone guidance in July with a revenue line between 38 and 39 billion and a margin at the EBIT level in the 17 to 18% range for 2022. Management made a point of highlighting how this EBIT margin is anticipated to increase in the future as a result of improved product MIX and increased focus on the EV transition during the CMD.
Porsche owns how many Volkswagen shares?
Despite market turbulence brought on by Russia’s war against Ukraine, VW intends to list the Porsche sports-car division.
After VW’s Porsche sports-car division is listed on the stock market, the wealthy Porsche and Piech families intend to maintain their controlling ownership of the Volkswagen Group.
Through their family investment company, Porsche Automobil Holding SE, the Porsche and Piech family owns a 53 percent stake in the Volkswagen Group.
According to Bloomberg Intelligence, Porsche SE intends to acquire a 25 percent blocking position in the anticipated Porsche IPO, which may fetch up to 90 billion euros ($99.1 billion).
According to Chief Financial Officer Johannes Lattwein on Tuesday, Porsche SE has a solid financial position and ample room to raise outside funding.
On a conference call with reporters, Lattwein stated that there are “no plans to lower the share in Volkswagen at this time.”
The IPO, the VW Group’s greatest strategic move in years, was being worked on by teams that were “very engaged,” he said.
Despite market instability brought on by Russia’s conflict against Ukraine, VW is still making plans to list the Porsche sports car division, one of VW’s major sources of profits.
The action is a part of VW’s aim to increase its market valuation and finance the largest transition in the industry to electric automobiles. It’s impossible to exclude out negative effects from the Ukrainian conflict on the IPO, according to Lattwein.
CEO Hans Dieter Poetsch, who is also the chairman of VW’s supervisory board, stated on the call that Porsche SE has “an great future ahead.”
“Cash flow is anticipated to increase even further, and the company can be expected to have both an attractive payout policy and an investment policy that is focused on the future.”
Volkswagen short squeeze reached what heights?
James J. Hill, J. P. Morgan, and E. H. Harriman engaged in a power struggle over the Northern Pacific Railway in May 1901. By the close of business on May 7, 1901, the two parties held over 94% of the shares of Northern Pacific that were still in circulation. Third parties shorted Northern Pacific in a frenzied manner as a result of the subsequent runup in share price. On May 8, it became clear that NP shares that had not been committed would not be enough to cover the open short bets, and neither Hill/Morgan nor Harriman would be ready to sell. As NP “shorts” sold off holdings to obtain money to buy NP shares to fulfill their obligations, this caused a sell-off in the rest of the market. A truce between Hill/Morgan and Harriman helped to lessen the impact of the impending stock market meltdown, sometimes known as the Panic of 1901. [10]
Volkswagen AG’s stock on the Xetra DAX rose from 210.85 to over 1000 in less than two days in October 2008 as a result of a short squeeze brought on by a Porsche takeover attempt, briefly making it the most valuable corporation in the world.
[11]
[12] A Stuttgart court cleared former Porsche CEO Wendelin Wiedeking of the charge of market manipulation. [13] [14]
In connection with a short squeeze on a number of high-yield bonds issued by MAAX Holdings, the U.S. Securities and Exchange Commission charged Philip Falcone with market manipulation in 2012. Falcone bought the whole bond issue after learning that a company was shorting the bonds. He also extended a loan to the short-sellers of the bonds, and upon their sale, he later purchased them back. Because of this, his overall exposure was greater than the value of the entire MAAX bond offering. Falcone immediately stopped lending the bonds, making it impossible for short-sellers to cover their bets. The bonds’ cost increased sharply. [15] [16] The only way for the short-sellers to close out their bets was by speaking with Falcone directly. [16]
In November 2015, bankrupt biotech KaloBios (KBIO) experienced a short squeeze that increased the share price by 10,000% in just five trading days. Short sellers had viewed KBIO as a “no-brainer near-term zero.” [17]
Beginning in January 2021, there was a short squeeze on GameStop shares[18][19] that was mostly caused by the Reddit site WallStreetBets.
[20]
[21] Due to this pressure, the share price on the NYSE rose to an all-time intraday high of US$483 on January 28, 2021. [22] [23] Numerous news outlets and social media sites covered this squeeze. [24]
The duration of the VW brief squeeze.
Do you recall the Volkswagen short squeeze scandal from 2008? The company’s value was 58 percent lower than its peak value at the end of the four-day event. Following that, it took hedge funds several weeks to get back on track.
What stock gained the most in value in a single day?
With a rise of 2,112.98 points on March 24, 2020, the Dow Jones Industrial Average (DJIA) experienced its greatest single-day increase in history. This happened around two weeks after the biggest one-day point loss, which took place on March 9, 2020 and was brought on by the mounting concern about the global coronavirus outbreak.
30 major firms that are traded on the New York Stock Exchange make up the DJIA index. Financial analysts regularly monitor this figure, viewing it as a leading indicator for the US economy. Knowing when these significant gains and losses take place can provide light on the potential causes of these oscillations. Those in 2018 are definitely indications of increased market volatility, whilst those in 2009 are probably adjustments following significant losses during the Financial Crisis.
Even though the DJIA is frequently watched, it only provides information on the performance of thirty of the biggest American corporations. An index like the S&P 500, which tracks 500 companies, can provide a more thorough picture of the American economy. This merely represents investment, though. Consumer spending and the unemployment rate, for example, are not adequately represented in stock market indices.
When was VW under pressure?
In 2008, when Porsche launched an unanticipated sequence of operations that resulted in it controlling a sizeable portion of Volkswagen’s (VW) stock, the largest short squeeze in history occurred. VW momentarily became the most valuable publicly traded corporation in the world as a result.
How did the VW short squeeze turn out?
They don’t last with brief squeezes, as you are aware. It was predictable what would happen next. Within four days, the price of the shares dropped by 58%, and within a month, it had dropped by 70% from its October 28th peak. It was a traditional short squeeze pattern, according to Lindsey Bell, chief investment strategist at Ally Invest.
With any short squeeze, we observe a sharp price increase followed by a sharp decline in popularity. Additionally, when there is a squeeze, everyone attempts to sell at once.
However, all squeezes often end in the same way, with the stock often just returning to the point where its flight began. Most hedge funds were aware of this and kept their positions throughout the turbulence. They received significant compensation when the stock fell 70% in a single month as a result of this.
Minute Takeaway
- $30 billion was lost by hedge funds during the VW crisis.
- The price of a VW doubled in just two days. As a result, short sellers lost tens of billions of dollars over the course of a few days.
- The stock’s price decreased by 58% in four days.
- Porsche acquired so much Volkswagen shares in 2008 that it drove up the price of VW stock.
- When hedge fund shorts on GameStop were squeezed, a similar phenomenon occurred. It ultimately cost them billions.
- A short squeeze is likely to occur in an actively shorted stock with a high short float and days to cover ratio.
A Striking Similarity to GameStop
The 28th of January 2021 will go down in history as a significant day for the video game retailer GameStop. Prices in 2020 stayed in the $10 to $15 range. In 2021, prices increased by 400% in a single day to $483. For that, you can thank the WallStreetBets thread on Reddit.
Despite the firm’s substantial short interest, retail traders coordinated an attack on big money by raising the price of the shares. Indeed, GameStop’s price dropped quickly to the $40 area, following Volkswagen’s example. In a week, everything.
VW Short Squeeze Bottom Line
Some of the greatest short burns of the century were ones we witnessed. Although short selling is a fantastic technique to generate big gains, it is not for the inexperienced or weak-willed. This is due to the fact that a short sale has a lot of potential pitfalls.
Making sure you’ve done your homework is the most crucial thing you can do. You don’t want to end up on the wrong side of a trade because this kind of trading is a very tricky game. Allow us to assist you in your trading endeavors. To get you started, we provide thousands of dollars’ worth of free courses and videos.