On Tuesday, VW briefly became the world's second most valuable company in terms of market capitalisation (share price x number of shares).
A number of hedge funds (risky funds) had bet on a fall in the share price. These bets took the form of an agreement to borrow VW shares, sell them immediately at the current price, and then buy them back again at a (hopefully) lower price before giving them back to the lender. This is a process known as 'short selling'.
However, when Porsche revealed it had a larger stake in VW than expected, the price of VW shares rose. The hedge funds all became desperate to buy back the shares they had borrowed before the price rose too high. The demand for the shares meant the price rose by 82% in a day.
This leaves some hedge funds having sold their borrowed VW shares low, and then having been forced to repurchase the same shares at a value up to 82% higher in order to 'close their position' (escape from the deal).
For many, it's hard to have sympathy for the loss-makers. Yet short-term investing is akin to betting: perhaps the kind thing would be to offer the fund managers (or their computers) a spell with Gamblers Anonymous to treat their addiction.
