The Volkswagen share in a rollercoaster

Something peculiar happened last week: the Volkswagen (the German car maker) share increased its value 4 times due to some uncommon circumstances.

On October 24th it had a value of 210€, in the days till October 28th jumped till 881€. Chart.

The events which caused it were the share composition and the Porsche buyout.
The share  is not very fragmented, the government of the region Niedersachsen (where the headquarter is) has 20% of VW while Porsche had 18% of it and from July 2006 they gradually increased it until they had 35% of it  (in September 2008) and the rest was spread among funds and small share-holders.

Porsche then announced that they had collected options (to buy further shares) till 74%, which left a very limited amount of available shares (the Niedersachsen government is not willing to go below the 20% that is guaranteeing power in every decision about the production in the land.

Meanwhile Hedge funds were betting on share losing its value.
How is this working?
Let’s say you have one share of a company and its values is 100€ now but I believe that its value will decrease so I offer you to lend your share for a while – let’s say one month – and I give you 1€ for the trouble.  I can do whatever I want with the share for one month until I can give it back it to you at the end of this period.
Once I have it and I immediately sell it for 100€ (the current value) hoping that it will decrease. If after one month its value is 90€ I can re-buy it and I’ll have a net profit of 10€ (actually 9€ after I paid you for the lending)
If the share instead increased I lose money.

Many funds bought Volkswagen shares betting that it will decrease, as all other carmakers shares were doing.

But once Porsche announced they had options and they wanted to buy shares from the small holders all the fonds realized that the value will not decrease and that they need to give the shares back (which in the meanwhile they sold) as soon as possible before the prices would go up. So they started to buy them back frantically . Combined with the fact that not too many were available it worked like a crowded auction (short squeeze effect).

For a moment the action even passed the 1000€ mark, making it the most valuable company in the world.

This was temporary but in the meanwhile a lot of money changed hands, and many funds lost money.

A wonderful example of creative financial engineering of our times.


Book Review: the 7 habits by Stephen Covey – Habit 5, 6 and 7

This is the sixth in a series of articles providing a chapter-by-chapter in-depth “book club” reading of Mr. Stephen Covey’s classic “the 7th habits of highly effective people”.
I’m reading from the 2004 Free Press paperback edition. This entry covers the fourth habit.

The 5th habit (Seek first to understand then to be understood)  is around the concept of empathic communication which is – according to Covey – a powerful deposit in the emotional account of everyone because it gives a person psychological air . It’s the unsatisfied need that motivates: the greatest need of a human being is to be understood, to be affirmed, to be validated, to be appreciated.

Continue reading “Book Review: the 7 habits by Stephen Covey – Habit 5, 6 and 7”

The first Software Engineering conference, 40 years ago

Between 7th and 11th October 1968 in Garmisch (near Munich, Germany) a conference about Software Engineering was held, sponsored by the NATO Science committee.

At that time software was just becoming as important as hardware was and independent from it. It was also moving away from research and university projects into industrial ones, much bigger and complex, therefore raising the problem of software crisis or gap and how to solve it.

It was the first of this kind and introduced many cardinal concepts for the subject, as design criteria, user requirements and realistic goals, continuous feedback through monitoring, need of high-level programming languages, software planning and management, communication in a project, frequency of releases, acceptance testing, splitting software and hardware production, mass-produced software.

Even the term “software engineering” was not general use until then!

The conference reports are available on Internet, for example at Prof. Brian Randell’s page and at the Jena University [PDF].