[carnitine]

This is just the way things are valued. Obviously you need to account for varying liquidity or whatever, but if you can sell 5% of Y for X, then Y is naturally worth 20X. Internal systems at banks report value to analysts, traders etc. in the same way, this isn’t some trick to hoodwink people, it’s just a convenient and sensible way of valuing things.

[short_sells_poo]

I disagree. It's a silly, misleading and inconvenient way to value things. Just because you can sell 5% of Y for X, it absolutely doesn't mean that Y is worth 20X. Doubly so when Y is in extremely limited supply. One could raise an objection: but hey, stocks are valued at X on the exchange, so what gives? And yes, they are, but anyone with a shred of sense knows that if you actually tried to buy or sell a significant portion of the company in question, the price you are going to get will be very-very different from what is being quoted, thus the actual true value of the company is likely to be considerably different.

Most actual professionals laugh at this kind of valuation, which is what makes the whole affair funny since a large portion of the industry is nevertheless happily using it.

I suppose one doesn't have to go too far for the reason: it benefits a large portion of the industry to value things this way, because they are implicitly inflating the value of their own investments.

Honestly, if I were to interview a quant and they claimed with a straight face that this is a sensible thing to do, I'd immediately thank them for their time and bid them farewell. It's that ridiculous.

Finally, I don't consider internal systems at banks to be some sort of benchmark for valuation. Most systems at banks are utter garbage. There are a few exceptions (option/exotics desks), but the rest is basically ran out of excel sheets.