by LEIBY BURNHAM | February 5, 2021 6:24 pm
Gamestop. If you are a gamer, an aficionado of playing games that move digitally across a screen, you knew about Gamestop for years; it is the world’s largest retailer of video games, with 5,509 stores spread across the US, Canada, Australia, New Zealand, and Europe. If you are not a gamer, you likely passed Gamestop stores many times, without ever noticing them. But now you’ve heard of Gamestop because it broke the stock market. It’s a pretty crazy story with hedge funds losing billions, diamond hands on Wall Street Bets going paper, and traders using their stimmies to earn some tendies. Let’s dive in!
In a world that has been increasingly moving online, Gamestop had been in trouble long before COVID. Most video games can be downloaded directly from the web, and downloaded games don’t get scratched or lost. When video game consoles have a new release (Xbox Series X, PlayStation 5, Nintendo Switch), people line up for hours up to get their hands on the new machines, but you can buy them online soon after. There are dozens of websites where you can buy, sell, or swap used video games. Gamestop, was looking like the next Toys-R-Us, or Barnes and Noble, headed for the dustbin of history. On February 3, 2020, before the COVID stock market crash, Gamestop’s stock, which trades under the symol GME, was at $3.82 a share. Its trajectory had been slipping downward for seven years straight, there simply weren’t anything pretty about GME and its prospects.
COVID didn’t help either, with thousands of Gamestop stores shuttered, the remaining ones serving reduced capacity crowds. Some big hedge funds began to take notice, and decided to short sell Gamestop as hard as they could. Short selling is when you sell a stock you don’t own. The basic mechanics are that you borrow the stock from your broker, and then you sell it, and hope to pay him back by buying the same share for cheaper in the future. For example, if I borrow a share of GME when it’s at $5 and sell it and pocket $5, and then two months later I buy it back for $4 and return the share I borrowed, I just made myself $1.
Short selling is considered risky, because the most I can make is a 100% return (if the stock I borrowed at $5 goes down to $0, in which case I keep all $5 and return a valueless share), but I can lose infinite amounts of money (if the stock I borrowed at $5 goes to $100, I need to buy a share at $100 and give it back to the broker who loaned me the share, and I just lost 2,000% of my investment!) Because of this, most short selling is done by sophisticated investors and big hedge funds, the Wall Street elite.
Hedge funds are large pools of money, ranging from 10 million to over 150 billion that are entrusted into the hands of a person or group of people to invest on behalf of wealthy people, also known as “accredited investors.” Hedge funds have a lot of financial tools at their disposal often make bets or investments in the more esoteric areas of the markets, from corporate junk bonds, to music or patent royalties, or the buying, revamping, and then selling of private businesses.
One move that has been often used by hedge funds, is to heavily short a stock, then have their highly respected financial guru go on as many TV shows as possible, and explain to the world why he thinks this company is overvalued and is going fail. People follow his sage advice and start selling their shares in the company, the price dives, and the hedge fund makes lots of money on their short sell.
If on one side of the market are the financial titans and respected gurus of Wall Street, on the other end of the stock market are the retail investors, regular Main Street Jane and Joe, who are just entering the market for the first time, often using apps like Robinhood which make it absurdly easy to trade stocks, with a app design that almost makes it look like a video game. Contrary to the popular narrative, the majority of Americans are richer coming out of the pandemic than they were going into it, this because of the extremely generous stimulus payments that the US gave out for months and months, and the fact that spending on travel, dining out, concerts, and sporting events was almost non-existent. In the US, personal debt is down, household savings are up, and many people were looking to invest that extra money they had and as a result Robinhood was the most downloaded finance app of 2020.
According to one recent study, retail investors now make up between 20-25% of all stock market moves, more than double what it was before the pandemic, and they are becoming a real force to reckon with! These retail investors don’t have access to pricey financial consultants, so they went where we all go when we want to know how to do anything, to the World Wide Web. Many forums sprang up with advice, faux-advice, scams, and real guidance. Wall Street Bets, a popular forum on Reddit since 2012 became one of the most popular places to discuss financial markets eventually attracting over 1.5 million users! Some of them were total newbies, but many of them were investing for a while and had some pretty sophisticated analysis tools. This all set up the ultimate showdown of 2021; Hedge Funds vs Wall Street Bets.
Many of the Wall Street Bets users detested the Wall Street establishment, whom they felt were arrogant, elitist, and used their money, power, and ability to get TV coverage to take struggling companies and short them into the ground. They were looking for a way to take down the hedge funds, make money in the process, and perhaps even help some of the struggling brands that they loved that were being attacked by the hedge funds. Gamestop was the perfect target. Hedge funds had pretty much shorted every single share of Gamestop, and they were talking trash about it all over media outlets, but in doing so they exposed themselves to an incredible vulnerability; the short squeeze.
As outlined above, a short sell means you borrow a share of a company, and then sell it, but that means that you need to buy it from the open market to pay back the share you borrowed. But if people on the open market start buying shares of that stock, and the price of the stocks starts rocketing upward, you find yourself in a terrible place; you sold it at $5 but now need to buy it back at $20! Even worse, if the people that own the shares don’t sell, you need to pay more for those shares, perhaps $40, perhaps $60! At $60 you lost 1200% of your investment. When you start buying the shares back at $60, that raises the price even further, and now it’s at 80 and you still need to keep buying because you shorted so many shares that you simply can’t seem to catch yourself! The short squeeze is nothing new, hedge funds have been doing it to each other for decades, but this is the first time that wolf packs of retail investors are taking down the big bulls on Wall Street.
Wall Street Bets traders decided to pull a short squeeze on GME, the Gamestop stock and make the hedge funds eat their hearts out for lunch. They encouraged one another to buy more and more shares, and encouraged people to have “diamond hands” which mean the ability to hold your shares even though they are worth so much more than you bought them for to keep the squeeze getting tighter and tighter. The law of supply and demand says that when something is in short supply and great demand, like a stock that has hedge funds demanding millions of shares to cover their shorts and owners of those shares who are unwilling to supply them to the market, the price of that item will soar.
Soar it did. The price of Gamestop, which started 2021 at $17.25 a share jumped up to $76 a share one day, $147 the next day, and $347 the following day! It’s highest point was at $483 a share midday of Jan 27. The hedge funds got wiped for tens of billions. Melvin Capital lost 52% of its entire value in less than a week, and needed a $3 billion emergency bailout from some other hedge funds. The users of Wall Street Bets were euphoric, and understandably so! They were ridiculed for days by the financial gurus who treated them like the clueless unwashed masses, they were called irresponsible, people talked about the need to regulate them, but they kept fighting, they kept encouraging each other to buy more shares and HOLD ON! HOLD ON! HOLD ON!!! Memes they produced by the hundreds, encouraging posts by the tens of thousands, and they finally saw their dreams realized. Not only had many of them made ridiculous amounts of money but they had cowed Wall Street. David beats Goliath.
There are fifteen other full-length stories we could cover over here. We could cover the spill over from Gamestop to other heavily shorted stocks like AMC Theaters, Blackberry, Nokia, Koss and American Airlines. We could cover how Robinhood, TD Ameritrade and other brokerages stopped people from buying more shares in those companies, but allowed people to sell them, essentially forcing down the price of companies, and the lawsuits that have already started rolling in. We could talk about how those diamond hands turned to paper hands and GME went from $350 a share to $50 a share in one week, with many retail investors losing money they couldn’t afford to lose. We could talk about whether retail investors have or even should have the same rights to move in the financial markets as seasoned investors. But we won’t.
We will talk about one thing; the power of the underdog to surprise. The Talmud (Nedarim 81A) says, “Be careful with regard to the education of the sons of paupers, as it is from them that the Torah will issue forth.” Here the Talmud is telling us that greatness comes out of those who have to struggle for it. Greatness comes from those who are not given respect, comfort, and security, but from those who are often ridiculed, who must take risks, and get out of their comfort zones.
The more that we fight for something, the more meaningful it is to us. The more sacrifice it takes for us to get somewhere, the more powerful the feeling of arriving is, and the more we can accomplish when we get there. This is true of Torah study, but also true of most other areas of life, beware of the little guy, beware of the retail investor, beware of the person no one notices, for from them comes greatness.
So if someone is rich, does that mean that they will be unable to become a Torah scholar? If someone is intellectually gifted will they be unable to become a thought leader? Are people hampered by the gifts they are born with?
The answer is that we are only hampered by the gifts we are born with if we rely on them to get us through life. If a person who is born smart allows himself to coast through classes and school because he can easily get A’s without hard work, and contents himself with A’s, he’s not likely to go big in life. If a person coasts on their good looks or charisma, which allow them to be popular without really developing themselves as a friend, she’s likely not to become all that she could have been. Greatness must be fought for, and we all have areas of poverty, areas of challenge that we must overcome.
We can be poor in attention span, poor in intellectual capability, poor in empathy, we can be financially challenged, we can be inarticulate, we can be poor in self esteem, but that is a good thing; those fields of poverty are the battlefields between us and our greatness. And when we honestly acknowledge where our poverty lies, and we attack those areas with a plan and purpose, that we finally unlock our greatness. HOLD ON! HOLD ON! HOLD ON!!!
Parsha Dvar Torah
This week’s Parsha starts with the arrival of Yisro, Moshe’s father-in-law. When Moshe came to Egypt he sent back his wife and children to Midian so as not to bring more people into a land committing atrocities against the Jews. Now, after the Jews were freed, Moshe’s father-in-law came to meet the Jews in the desert bringing with him Moshe’s wife and children. When he got there, he converted and joined the Jewish people.
The events leading up to Yisro’s arrival are described in the first verse of the parsha. “Now Moses’ father in law, Yisro, the chieftain of Midian, heard all that God had done for Moses and for Israel, His people that the Lord had taken Israel out of Egypt.” (Exodus 18:1) Rashi asks what exactly Yisro heard which prompted him to come to the desert and join the Jews, instead of just sending his daughter and grandchildren. He answers that he heard about the splitting of the sea and the war that the Jews had fought with Amalek.
One part of this answer makes perfect sense, while the other seems troubling. G-d splitting a sea and allowing the Jews to walk through on dry land is something spectacular, and a good reason for someone to come and join the nation. But the fact that they had fought a war with Amalek and won doesn’t seem to be such a great reason for a person to uproot themselves from a land where he is well respected and come out to the desert and join a new nation! If Rashi told us that Yisro heard about the splitting sea and the 10 plagues or the splitting sea and the exodus from Egypt, I would understand, but what is so significant about the war with Amalek that Rashi tells us that this caused Yisro to radically change his life?
One answer I heard last night from my wonderful wife is that it was not the fact that the Jews defeated the Amaleky attack that inspired Yisro, but the fact that there was such an attack in the first place. Yisro wondered how could it be that after the splitting of the sea, a miracle of gargantuan proportions that rocked the entire world (the Sages tell us that every body of water in the world split on a smaller scale to show the world the miracle), someone dared and come attack the Jews? Egypt, the superpower of the world, was brought to its knees by ten terrible plagues, and still didn’t stop pestering the Jews. Then they followed them to the sea, and were thoroughly vanquished by the raging waters that tumbled back upon them. Wouldn’t that be enough to keep everyone away from the Jews?
But somehow, shortly after the splitting of the sea, Amalek came with an army to attack the Jews. Yisro realized that when someone sees a huge miracle, it doesn’t necessarily change them; it just provides an impetus for change. And if one doesn’t seize the moment, it gets lost and loses all its power. This is how the nation of Amalek was able to attack. They let the miracles they saw slide right off their backs, and blithely continued with their evil plans. Yisro realized that he didn’t want this to happen to him, so he seized the moment and came to the desert to join the Jews.
Many times we experience powerful moments in our life, and we are left with a feeling of inspiration. What Amalek and Yisro teach us is that if we don’t capitalize on that moment, we can lose it forever. Let us try to be Yisros’ and not Amalekites! Carpe’ Diem!
Parsha Summary
This week’s Parsha starts with the arrival of Yisro, Moshe’s father-in-law. When Moshe came to Egypt he sent back his wife and children to Midian, so as not to bring more people into a land committing atrocities against the Jews. Now, after the Jews were freed, Moshe’s father-in-law came to meet the Jews in the desert bringing with him Moshe’s wife and children. When he got there, he converted and joined the Jewish people.
Yisro’s biggest contribution to the Jewish people was the judging system that he instituted. He noticed that Moshe would sit all day judging people, while the line to see him grew and grew. Yisro told Moshe that this system would burn out both Moshe and the people. He suggested that Moshe create a hierarchy of judges, with the most minor only responsible for 10 people, the next over 50, 100, and finally 1,000 people. The big questions and cases that couldn’t be dealt with by those judges would come to Moshe.
Moshe asked G-d, and with G-d’s permission, he appointed judges who met the following criteria; G-d fearing, accomplished, despises money, and men of integrity. He appointed them according to the positions mentioned above, and the new judicial system ran as smoothly as butter on a hot skillet!
The next part of the Parsha deals with the Jews’ arrival at Mount Sinai, and the revelation they experiences there. I will break the events down by days.
Day 1: The Jews arrive at Mount Sinai with a unity that is unmatched in their entire 40 years in the desert.
Day 2: Moshe goes up the mountain to talk to G-d. G-d tells him to tell the Jews that they have seen G-d’s miracles and His affection for them, but now He is making them an offer. If they want, they can accept the Torah and become a “Treasured Nation,” but they have to remember that it comes with a lot of responsibilities. Moshe comes down and tell the people who respond with a unanimous, “Whatever G-d says we will do!”
Day 3: Moshe goes back up, and delivers the Jews’ answer (G-d already knew it, but this teaches us that when one is sent to deliver a message they should always bring back the reply). G-d tells Moshe that He will speak from within a dark cloud to Moshe, but all the people would hear Him talking, and this would be a way for the people to know that Moshe was a true prophet. Moshe goes down and tells the people.
Day 4: Moshe ascends the mountain again and tells G-d that the people want to hear G-d talking directly to them. They said that hearing from an emissary doesn’t compare to hearing from a king! G-d tells Moshe to go back and tell the people to prepare for two days (by purifying themselves), and that on the third G-d would talk to them. He also warns them not to touch the mountain or try to climb it, as it has a special holiness. Moshe gives the message but, according to one view in the Talmud, he adds a third day of purification (this is the topic of some very deep insights, but it’s not within the scope of our Parsha Summary).
Day 5: Moshe builds an altar at the bottom of the mountain, as well as twelve pillar monuments. He brings sacrifices on the altar and eats with the people.
Day 6: On this day, according to some, the revelation took place. According to others this was the extra day of preparation that Moshe added.
Day 7: G-d reveals himself in all His glory to the people, as they hear Him talking directly to them and speaking out the first two of the Ten Commandments (which would be more appropriately translated as the Ten Statements). The event is too powerful for the mortal humans to handle, and the people ask that Moshe tell them the last 8 instead of having G-d directly speaking to them. This is the only time in all of recorded history where G-d spoke to a mass assembly. Never, ever, has any other religion even claimed this. (This is one of proofs of Judaism’s validity over all other faiths in which individuals such as J.C., Mohammed, the Buddha, or Joseph Smith claim to have had personal revelations.)
Right now, before continuing, name all ten of the Ten Commandments! Yes that’s an order!
Not sure? OK I will help you out.
After this momentous event, G-d commanded Moshe to tell the people that they had seen and heard G-d speak to them (one of the miracles of the revelation was that people saw sounds), and they had better not make or worship any other deities. He also commanded them to make an alter, but not to use stones hewn with iron. Iron is the material used to fashion weapons, and an altar needs to be a paradigm of peace. That’s all Folks!
Quote of the Week: Live as if you were to die tomorrow. Learn as if you were to live forever. – Mahatma Gandhi
Random Fact of the Week: If you’re over 100 years old, there’s an 80% chance you’re a woman.
Have a Resplendent Shabbos,
R’ Leiby Burnham
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