Cyber Security (Better Than Musk)

By Chris at http://ift.tt/12YmHT5

I still remember my brother coming home with a cell phone.

It looked like a brick and weighed as much. But hell, was it cool. That was in the late 90’s.

The world today is almost unrecognisable in comparison.

Today, people are hyper connected all the time – streaming Kim Kardashian bending over in her yoga pants or listening to Justin Bieber (why, I cannot fathom). Using some app to help park the car, another to book a hotel, yet another to organise flight schedules, and – when the novelty of all of those has worn off – an app to organise getting laid. Revolutionary stuff!

And if that weren’t enough, while all this is going on you can wear a Fitbit which will record every minuscule thing you do and feed this information back to any device of your choosing in order for you to quantify just exactly how fat and appallingly lazy you actually are.

Not only that but we’ve not even begun to discuss the homes, shopping centres, airports, etc. all regulated with sensors controlling climate, security systems, and so on.

Now, I’ll readily admit to having almost none of these gadgets, partly because I’m mean and partly because I like to keep my life simple. 90% of this stuff doesn’t do that for me.

The other reason is experience has taught me that when the new iAnything comes out it costs $1.8bn new and within 24 months you can get it for a few hundred bucks – Moore’s law being what it is. And by then, I’ve determined I don’t really want it anyway. Problem solved.

Twenty years ago, we all thought we’d be in flying cars by now. Instead we got the smartphone, exquisitely designed to build the next generation of hunchbacks.

There is a beacon of light at the end of this tunnel, though.

Two things:

  1. Turn off the meaningless junk and recapture your life, and
  2. Realise nobody else will, which means that we’re dealing with a growth industry. Excellent!

Tell me, how dependent are you on technology?

Think about it seriously and remember that almost EVERYTHING is connected. Look around you and you’ll realise that EVERYONE is connected.

Take a look at this:

Did you know the IOT was this large? I didn’t.

Think about those 50+ billion connected devices – each of them a vulnerability point for breach of data.

As I’ve written recently, security is an area where nowhere near enough money is being spent. This will change.

I wrote about a private company I’ve invested in in the IOT sector of security, where I mentioned the following:

“The real bang for your buck will lie in artificial intelligence, machine learning, drones, and the integration of existing data sources.”

It’s going to change because the risks are exponential.

Consider recent data hacks in the corporate sector:

  • eBay (NASDAQ:EBAY): 150 million passwords
  • JPMorgan Chase (NYSE:JPM): 73 million emails
  • Target (NYSE:TGT): 40 million credit card numbers
  • Yahoo (NASDAQ:YHOO): 1 billion accounts

Ok, so that’s the corporate sector. And remember for many companies simply admitting to hacks taking place renders them less trustworthy in the eyes of the consumer. Most CEOs would sooner admit to genital warts than admit to data breaches. Industry experts suggest the actual number of hacks taking place are far higher than being reported. I don’t doubt them.

Government

Chairman Trump isn’t the only guy to see that cyber security is important. Certainly Hillary figured that one out. It may have even contributed to her losing the election. Here’s what Trump says about cyber security:

“I will make certain that our military is the best in the world in both cyber offense and defense. I will also ask my Secretary of Defense and Joint Chiefs to present recommendations for strengthening and augmenting our Cyber Command.”

He goes on to say:

“To enhance the defense of the other agencies of government, including our law enforcement agencies, we will put together a team of the best military, civilian and private sector cybersecurity experts to comprehensively review all of our cybersecurity systems and technology.”

What Can We Do?

On a personal level we should be protecting ourselves. Get rid of the crap that brings no value to your life. Simply not using something reduces personal risk.

If you don’t know what I’m talking about, then I strongly suggest watching Snowden and Citizenfour, and jumping online to watch videos given by hackers. You’ll quickly realise how vulnerable we all are.

The simple stuff like using a firewall, anti-virus software, never using public Wi-Fi, and always using a VPN should be mandatory for any device we use. It’s just so easy to use public Wi-Fi, neglect using a VPN, but the risks are asymmetric to the downside. Like wearing a seatbelt, it doesn’t matter until, well, until it does.

Will this protect you from being hacked or your history being recorded and archived? No, but it’ll substantially decrease the risks.

Out of those listed topics above, the only one I’ve had some issues with over the years has been the use of VPNs. I’ve used a number of different ones and, like anything, some work better than others, often depending on your location. I recently found what is I think the best I’ve used so far, but whatever you use, I think using a firewall, anti-virus software, and then neglecting a VPN is silly.

How to Invest

While I’m not sure this qualifies as asymmetric in nature I do think that we’re looking at a growth industry.

Here is a good resource with a host of forecasts and trends in the IOT industry.

Estimates of the current size of the IOT market range from $600 billion to $900 billion. Even if we’re working at the low end of that range, consider that the two largest ETFs in the cyber security space total a combined $870 million. That’s it.

That’s nothing!

Heck, Enron On Wheels’ market cap is now north of $50 billion and they make cars (barely) with other peoples’ parts. I’d gladly pair trade these over the next decade. Long HACK and CIBR and short TSLA.

In any event, here’s HACK:

And CIBR:

There are pros and cons to them. HACK has more liquidity, is larger in size but charges a higher expense ratio than CIBR.

Why look at ETFs?

Remember Betamax? Killed by VHS which DVDs then sent to the grave.

You want to be involved in the growth of the sector but unless you are going to dedicate your time to really understanding all the movers and shakers in that sector, diligencing balance sheets, earnings statements, competing technologies, and the like, then you’re better off making a sector bet.

If you want a set and forget play, then buying the ETF means you’re just making a sectorial bet not betting on Betamax in 1977 just as VHS was being released.

Either way, cyber security is likely to do really well over the coming years. It’s a war hedge, an innovation play, and, as long as the IOT space continues to grow cyber security, will become an increasingly required service sector.

– Chris

“There are only two types of companies. Those that have been hacked and those that will be.” — Robert Mueller, FBI Director 2012

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