Chapter 6 - “Should I Invest in Cyber Security? Let's Take a Closer Look” - The Incompetent Investor

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Monday, December 17, 2018

Chapter 6 - “Should I Invest in Cyber Security? Let's Take a Closer Look”

How do you feel about Cyber Security? I was curious over the weekend on how I could morph this interest into a strategic investment.  

My experience with getting hacked was after I was being a keyboard warrior on League of Legends a few years ago. All of a sudden after a few verbal blows to my opponent, my internet was compromised and I was disconnected at will. This honest to god is a true story. Even as somebody who is pretty familiar with computers, I was gobsmacked as to how a 13 year old was holding my internet connection at ransom. After 6 hours or so so, in the end I apologised. My anger got the better of me that day (I am not a angry person by the way). I learnt my lesson after that. I am now the most down to earth and humble player  when I play computer games. You just never know who you are going to piss off ha ha. 

If one of my team mates is deliberately letting the opposing team win (which is quite common in League of Legends sadly), I will comfort them by saying, "that is okay pal, we are all gifted different levels of ability,  just do your best", as opposed too.... nah actually I wont go there..ha ha...

Before I even consider investing in cyber security, I first needed to do some intelligence gathering. 

As you read this very blog post, you are either doing it on a laptop, your phone, or another electronic device of some variety. The reality is we do most things through technology particularly with the rapid advancement of IoT (internet of things). All our wealth and sensitive data is stored upon these devices. It is widely accepted that Australia is facing increased frequency of attacks to its national and economic infrastructure (ACSC 2017, 16). 

As a regular Joe myself, I don't believe we fully acknowledge the importance of having advanced cyber defence capabilities to protect the countries national & economic interests in a globalised connected world. 2018 has been a interesting year in respect to Cyber Crime. Let's have a look at some of the high profile Cyber Crimes of 2018. 

Under Armour: On March 25th 2018, Under Armour had learnt that MyFitnessPal was breached. MyFitnessPal is a exercise and diet application which is particularly popular amongst the active community. It was estimated that 150 million records were breached. The sneaky bastard managed to infiltrate a multi billion dollar company. 

Exactis: On the 26th of June 2018, Exactis disclosed 340 million people had their personal data compromised which included businesses as well. Exactis is a marketing and data aggregation firm based in Florida. The breach was based upon Exactis having 2 terabytes of information stored on a publicly accessible server. Individual's physical addresses, emails, phone numbers, and even children's names were breached. This particular event once again reaffirms the importance of having advanced cyber security infrastructure within businesses, particularly those that hold sensitive data

Aadhaar: On the 3rd of January 2018, it was disclosed that 1.1 billion records had been breached. You heard me, 1.1 billion. A couple of reports from Tribune News alleged they paid 500 rupees for login credentials of Indian Citizens which was offered by some shadowy criminals on whatsapp. 500 rupees is approximately $10 AUD.  Pretty freaky stuff right?

To see the top 10 High Profile Cyber Attacks of 2018, check out this fellas blog post

The capabilities of cyber crimes are becoming more diverse and constantly evolving, and their operations generally dwarf in comparison to costs of governments and organisations. Sophisticated modern day criminals no longer need to blow down doors to obtain money and sensitive data. The new age criminal is extremely intelligent and they consistently scan for organisations and governments that lack basic security systems to propel attacks. 

Unfortunately, hackers will always find a way to break into computer systems. Although, while that is true, it is also important to recognise that there are some brilliant minds that work on the other side and are equally as motivated to defend attackers. The overarching message here is that companies & countries must prioritise cyber security as part of their long term vision to ensure they stay on top of the continually growing threats that exist within the technology driven world we live in today. 

Take a look at what cyber criminals earn...

What ETF's am I considering to take a position in the cyber security space?

At the moment, I am looking at 'HACK' which is managed by Betashares. I don't know about all of you, but I recognise picking stocks is a fools game. Especially an arguably speculative sector like Cyber Security... Below is a graph of the Betashares ETF, 'HACK'. 

To give you some context, I purchased CVT many years ago in 2015 for circa 0.45 cents. Ever heard of them? I doubt it. They are a cyber security company. They are trading at 0.017 cents today.  Nothing against the company, but to me, micro stocks are essentially gambling. HACK on the other hand invests into the leading companies in the global cyber security sector. Still a risky asset class, but not as crazy as investing into a little company like CVT like I had done. Each to their of course.

HACK currently has $121,077,312 under management according to their website and have an annual management fee of 0.67%. In other words, $10,000 would cost you $67 in management fees. According to the website, HACK pays a distribution semi annually which is nice to see. 

(Betashares HACK Fund Returns After Fees) 

Looking at the funds returns, it appears the fund has slightly under performed the general cyber security industry. The fund has only been around since the 30th of August 2016 and yet it has returned 15.38% pa which is pretty flipping good. Again, this is not comparable to your AFI, MLT, BKI, A200 and so on. It does not have a long term proven track record. 

In my mind, while HACK is not a singular company, the sector itself is still relatively speculative and you would expect to have vicious swings to the upside and downside. Given our ever evolving world in terms of technology, I will be picking up some HACK at some point. In terms of my asset allocation towards HACK, I personally would not be dedicating more than 5% to HACK at this stage. 

To do some of your own due diligence feel free to check out HACK Betashares

That is all from me... as I was writing this post this afternoon, my wife advised me that we received a $600 fine from the local counsel for something rather. The uphill battle to FI is real.... the computer I've been hoping for hangs in the balance now!!!! 

Please remember to always do your own research and never invest into something you do not understand. 


Disclaimer: The information on this website is general information and should not be taken as financial advise. I am simply documenting my journey and experience. I am also not a licensed Financial Adviser. You should always seek independent legal, financial, taxation and other advise that relates to your unique circumstances. The Incompetent Investor is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.

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