Category Archives: Wealth Esteem

Practical advice and notes

Porsche Fleece Hedge Funds for 12 Billion Euro in Volkswagen Sting

Porsche There is No Substitute!

The background:

  • In September 2005 Porsche bought 20% of its larger but less profitable German rival Volkswagen.
  • In March 2007 Porsche bought another 19.9% (to 39.9%) and launched a takeover bid.
  • In October 2007 the law preventing the takeover of Volkswagen was scrapped.
  • On 20 October 2008 Volkswagen’s share price fell 23% on short selling by global hedge funds who bet the price of Volkswagen was too high and Porsche could not economically acquire more stock.
  • On 26 October 2008 Porsche announced it controlled Volkswagen through 42.6% direct holding and call options exercised over the another 32.4% (=75% !). As most of the balance is owned by the state or index funds, that left only about 5% on market to cover the shorts the hedge funds sold.
  • On Tuesday 28 October Volkwagen became the biggest company in the world momentarily when the hedge funds had to buy “at any cost” driving the price to €1,005 (from below €200 a year ago)
  • Late Tuesday Porsche agreed to release an addition 5% of stock to the market to maintain liquidity
  • The hedge funds then complained to the regulators that Porsche built a stake without their knowledge.

The sheer arrogance of Hedge Funds crying foul over this should offend me, but it’s their modus operandi to bully, lie and sneak around to make a buck. They have been accused for years of selling naked shorts. Normally you or I must first borrow the stock we plan to sell short before we are allowed to sell it. We’d pay a fee to the lender of the shares. If you sell without borrowing the shares first you are naked. It’s riskier but often more profitable if you can buy the stock on-market after sentiment has turned against a company. Nothing turns sentiment against a company like a huge overhang of stock on the offer line of the quote screen.

So if you can sell a naked short because you think German Automobile Manufacturers are in for a tough time in this economy, it is in your interests to get that story out after you’ve sold. Short sellers told everyone they could that Lehman Brothers was in trouble after they’d sold.

Now naked short sellers represent a counter-party risk of failure to deliver the stock at Trade plus 3 days (T+3).

Take a look at the failure to deliver reports produced by various exchanges. Some companies are consistently targeted by naked short sellers and the sellers regularly fail to deliver stock without serious penalty.

Finally someone with the clout to take on Hedge Funds called their bluff and made a bundle. So the hedge funds cried to the regulators.

These are the same hedge funds ignoring T+3 delivery dates on equities. Imagine what happens if you or I fail to deliver.

What makes me assert these were naked shorts? If the Volkswagen volume was mainly covered shorts it is unlikely the hedge funds would all need to return their borrowed shares on Tuesday 28 October. The borrowing would all be on a normal distribution. So there would not be a spike on 28 October intraday to €1,005. The price would be elevated but it would shake sellers out to the market.

Similarly any index funds or active investor should have been reweighing their portfolio, so the impact should be relatively minor compared to the recent overall market malaise.

Sadly there is a cost to the punters of this lesson. Most hedge funds do not take retail investments from small investors. Instead our retirement and superannuation funds place some of our pooled funds into them. So a hedge fund’s loss does come home to its small investors.

It still felt good to see hedge funds take a hit.

Tribute to a great man

Lars Hinrichs is a great entrepreneur and my friend. He’s also the founder of OpenBC the preeminent social networking platform in Europe, and the best of breed in the world (more on that in another post).

OpenBC now has a blog OpenBlog and I was saddened to read of the passing of Lars’ grandfather. While I never met the man, Bill Liao’s tribute to a great man touched me as did the WH Auden poem.

Many of us celebrate success carved from adversity by the mythical lone wolf entrepreneur. But a greater legacy is to succeed and then mentor and guide another generation.

Heinz Richard Böse was by all accounts such a man.

Vale.

Update alert email vs rss

My email notification service is not very popular. I’m glad of that as many of you follow this blog using RSS (thanks for watching). I don’t think email is a good medium for blog updates.

I want to quote skippy

Email notification is not the best use of resources for most blogs. I wrote my plugin because one site that I manage (but to which I do not contribute) is read primarily by people unfamiliar with content aggregation (RSS and ATOM). Content aggregation is a far better mechanism for update notification. It uses less resources on both the client and the server; it benefits from working in aggregate (sites likes bloglines fetch the latest update and then all bloglines subscribes for that site can read the update, representing massive savings in bandwidth); and subscribing to content is strictly a client-side operation: you don’t need to fork over your email to a potentially unscrupulous site looking to sell a subscriber list.

If my plugin works for some folks, I think that’s great. I think it’d be even better if everyone using my plugin would make modest efforts toward educating their subscribers about the wonder (and power) of content syndication.

There you have it.

Silktide SiteScore and others

I’ve been trying to evaluate this website to clarify my view of what it actually provides.

There were some interesting tools to help the technical side.

Silktide SiteScore for this website
Anybody know of others are out there?

Update 6 October 2005
I am proud of the high sitescore I get on that site. It’s currently 8.4 out of 10 and the only real negative is a low popularity score. I’m not sure how they measure that, but I don’t do this to be popular, except maybe I’d post more often.

Oh they also hate the number of links I have but I disagree with them there.

Email update advice available

For a long time I thought RSS was the best and only way to notify readers of updates to the blog, especially in this world of ever rising spam. However I’ve changed my mind.

I believe in removing barriers to communication. I’ll occassionally rally against the dumbing down of modern life, but I value the dialogue.

If you want to receive an email every time I update the site, just click the link over on the right. The form will appear at the bottom of the next page (while I work out some layout issues). As usual I wont share your details nor send you bulk email (commercial or otherwise). Each email will have clear unsubscibe instructions.

Recently I’ve been posting about 4 times a month. That should rise to 8 times a month in busy months, and drop to twice a month in really busy months 😉 .

Sydney International Airport

I’m off to Kuala Lumpur for a conference for three days. It is YEO’s Global Leadership Conference. I’m looking forward to learning more about the international aspects of the organisation. Part of my growth as an entrepreneur and investor is to learn from other successful business people.

Yes it’s also an excuse to have a great party.

I’m flying Austrian Airlines, so I hope I enjoy the experience.

This post is actually from a Samsung e-lounge, free internet kiosk here in Sydney International Airport.

Motivated

I was driving into the office today. Given it’s a 50km trip each way, I usually either listen to a talk on tape (or CD) or I drive and think in silence. I actually like the thinking time.

I was pondering why I’m struggling with myself to get to the office. Sure a 100km communte is no fun. But is that all? Our cashflow isn’t great at the moment, but that is a chicken and egg thing. If I don’t drive the business it wont grow by itself.

Then it occurred to me. My warehouse is located so far away because my father located it when he controlled the group. I now have a new business unrelated to any of that history. But I still had the remnants of the old business when I located it conveniently for the support staff.

Support staff who did not survive the transition from old, direct sales to modern, customer focus, e-tail. And the rent is 50% cheaper than anything closer to home.

Subconsciously the drive reminds me of the succession wars. While they are settled (some paperwork to finalise still), the emotions run strong. No wonder I don’t look forward to the drive.

I had contempt for CEO’s who relocate their corporate headquarters immediately after taking over – a tremendous waste of shareholders’ money. Now it is a also catalyst for change. Relocating allows a business to create a new image, future and destiny. Or it could still be a monstorous waste. 😉

Entrepreneurial companies must be faster and more aggressive than their competitors. Entrepreneurs maintain massive action to reach their goals and the working environment is strong influencer.

My lease is up in October, so I have some planning to do.

3am Phone conference

It’s 4am and I’ve just finished a seminar in the US. The subject is What’s New in Marketing. Interestingly I attended via international phone conference while following the Powerpoint presentation on the web.

I was dialled into the conference via a phone card for the first half. At 2cents per minute it’s a hard to beat the price. It took a couple of attempts to connect to the US phone number but it didn’t cost me anything until I did actually connect. I think these cheap phone cards use Voice Over IP technology to keep the price down so the quality is not exceptional, but usable.

About halfway through I got the audio feed booming through my laptop so I hung up the phone. Cool technology. I can’t ask questions via the weblink – that’s only available while I am on the phone.

Webinars are a cheap way to attend one hour seminars on a range of topics. Look out for them. Yes some are at unkind hours, but this mornings one was a test for a really important one I’m attending tomorrow at 6pm Sydney time. I wanted to make sure the technology was working at my end.

Check your website

As this is my personal blog I don’t regularly do health checks on it. A health check includes clicking every link and interactive step on the process. If you run a business with an online presence this is an essential regular step. Don’t wait for the log entries to alert you, and most users wont bother.

Two examples today.
A friend publishes a business magazine. I visited its website and decided to use the contact us page to give them some feedback (I encouraged them to add Firefox to their up-to-date browser check). Of course the contact us script crashed. It’s one of many things designers don’t test remotely.

Check all links localy and remotely in as many different browsers as possible.

Second example:
Now that I am no longer conveniently located next door, my uncle’s book business decided to upgrade and outsource their web site. I was their technical resource and my price was perfect (free). Cheap was the order of the day. Funny how they suddenly have a budget to do what they claimed wasn’t important (a lesson for another day). So they’re going with an e-commerce hosted solution and a mid four figure budget.

They hosted their old site on a machine sitting in their offices. That’s not too bad as they merely wanted a web presence – static catalogue without online ordering.

But they currently get between 300 and 500 search engine keyword hits per month on their products. Not bad traffic for people who aren’t trying.

What did their new web designers do? They built a beautiful ecommerce enabled website for them and totally changed their structure, without maintaining or redirecting their old static files. This will result in valuable free search engine traffic (a.k.a. pure gold) getting dreaded HTTP 404 “file not found” errors. So they’ve thrown away google pagerank and qualified traffic.

I sent their designers a quick note. I wonder if they’ll fix it?