Schindler Financial Newsletter Q1 2019

Aaron Schindler

Aaron Schindler

Correction Rejection or Market Opportunity?
Investing in an Army without Bombs & Guns?

By Robert Lovenheim. Edited by Aaron D. Schindler, CFP ®

Copyright 2019 Robert Lovenheim & Aaron D. Schindler, All Rights Reserved

January 2019 – Market corrections offer opportunity. It is an advisor’s job to look for value even in times of fear and insecurity. Technology has been one of the leading investment sectors worldwide, bringing the price of the S&P 500 Growth Index (Apple, Amazon, Facebook, Google, Microsoft, etc.) to an alltime high in October 2018, yet dropping more than 10% since. Technology, however, isn’t going away unless you’ve ditched your Smartphone for two Dixie Cups and a string.

Now that valuations have receded, the question is what trends hint at the future? Is it the next device to increase efficiency? Is it an app or software? Or is it an operating system across a broader spectrum that will be needed? Daily, I ask myself, how do we increase efficiency while maintaining cybersecurity in a digital transactional world where information and currency are commodities ripe to be stolen or hacked?

The new Apple iPhone, for example, uses facial recognition instead of a password—and it works quite well. This is just one use of cybersecurity software that has found its way into the mass market. Other areas of business and commerce could sorely use updates.

Looking back at the end of the Cold War and books such as Francis Fukuyama’s “The End of History and the Last Man,” we might yearn for a time of such innocence. Terrorism had not yet morphed into the constant presence we now feel on- and offline, and the digital age had yet to announce a new form of warfare to replace shoot downs and body counts.

Cybersecurity is now the “biggest workforce going forward” suggests GovTech magazine (Oct-Nov. 2018) with a whopping 98% need. The need in private industry is likely just as great. According to recent estimates, there will be as many as 3.5 million unfilled positions in the industry by 2021 (Forbes, Aug 9, 2018).

One estimate (although it is only a guesstimate in the world of the dark Web) is that 1.5 trillion dollars were stolen in online crime in 2018. With more and more devices being deployed with flimsy firewalls (such as automobiles, smart electric meters, and Alexa), an entirely new arena for “denial of service” attacks for ransom has been created. Could a clever hacker in an obscure country on the Eurasian Steppe bring your car to a halt or shut off electricity to every home in Con Edison’s domain? The answer is probably yes.

For the prescient investor, these developments should be taken as caution and opportunity. The caution relates to our own habits and how we expose ourselves to hackers daily. Most successful attacks, even those on giant, well-fortified systems like Marriott, are “inside jobs.” That does not necessarily mean employees are leaking information purposely. In most cases a breach of protocol, as simple as sending a joke to a friend without encryption, can lead a skilled hacker back to an email account or a password that can lead to others—and others. Eventually there will be another breach that will lead to troves of data and perhaps the encryption code as well.

Is the password on your Amazon account generated by a password generator?” Do you use two-step verification? Terms that seemed exotic two years ago are now part of our vocabulary.

What companies are producing the new security apps? The next question is where to invest? Most of the companies working in cybersecurity are private, yet some are public. For some obvious candidates, cybersecurity efforts only represent a small fraction of profits. Perhaps the place to look for more pure play investments is in ancillary fields.

Blockchain offers decentralized encryption and validation, making it virtually impossible to hack (at least currently). It can be used for private or public networks, making it suitable for health and government records as well as bank transactions.

AI, artificial intelligence, is seen as a helper that can free humans from many of the tasks done now. It is destined to play a big role in shortening the time for contextualizing data and deciding a course of action. This is vitally important in the coming world of IoT (Internet of Things), because controlling everything from autonomous vehicles (AV cars) to Alexa secretaries will require lightning-fast validation to guard against hacking attacks.

Where the business of cybersecurity is headed is away from a centralized, permission based, hierarchal view of management and control.

The Maginot Line was a series of concrete walls, fortifications, obstacles and weapons installations built by France in the 1930s to deter another German invasion. It didn’t work. The Wehrmacht became expert in mobility and simply drove around it. They could be termed the first “hackers.”

Our path to solutions always runs through higher technology. As promising as blockchain and AI appear for the future, they are still longer-term solutions. Is there a more immediate, simple cure to at least try? There may be many. Long before the Internet age, mapmakers found a solution to protect the copyright of their works. They simply put in a fake street. No onbut the mapmaker knew which or where it was, so unmasking an unauthorized copy was easy.

As we begin the New Year, try not to fret about market corrections, but look around at your uses of technology for your own needs. This is a good way to attune yourself to potentially promising technology investments and find opportunity.

For comments and questions, please contact Aaron D. Schindler, CFP, 917-715-2233

Copyright 2019 Robert Lovenheim and Aaron D. Schindler CFP, All Rights Reserved

Not for reproduction without permission and consent by Lovenheim and Schindler

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Aaron D. Schindler is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 355 Lexington Ave, 9th Floor, New York, NY 10017, (212) 541-8800. Securities products/services and advisory services are offered through PAS, a registered broker/dealer and investment advisor. Financial Representative, The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Wealth Advisory Group LLC is not an affiliate or subsidiary of PAS or Guardian. 

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2019-72303Exp. 1/2021