buy the dip
TRANSCRIPT
Buy The Dip
John Foster, CTP, ISO 9001, 14001, 20000, 22301,
27001, 28000
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Flickr:revstan
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Topics
Stock Market Analysis of Hacked Companies
Financial Impact Analysis
Spend Analysis Dealing with Equity
and Debt Investors Treasury & Cyber
Insurance Exercise: Non-
Technical Defense
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Disclaimer
All opinions no facts • No slander or libel lawsuits
All opinions are mine• Unless you want to sponsor
No offer to buy or sell securities Nothing here constitutes personalized advice Always seek sane and qualified advice
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Bio
Compliance & Sustainability
Financial Researcher Certified Treasury
Professional Active Trader Cost Cutter Activist Henchman [email protected]
et @dearestleader
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That’s How I Troll, Bro!
Kim! I’m laughing at the ridiculous haircut!
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Fun Stuff
Volunteer animal rights / environmental nonprofits
Nightclub & concert promoter
Appeared in several d20 supplements
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Stock Photography
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What We Have Been Told Is Wrong
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There Is A Cover Up
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What Do We Hear?
Reputation damage
Customers leave Board & Executives
fired You will be hacked
out of business
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Turn Your World Upside Down
Companies do not get hurt
Consumers do not care
Numbers support this
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Class Is In Session
Flickr: benrussell
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Backtesting Experiment
Hypothesis: Hacked companies go out of business
Test: Short sell 100 shares at market close on day of breach
Date Opened Symbol Qty
Current Price
Opening Price Net
3/18/2011 EMC 100 27.65 25.63 -202.004/26/2011 SNE 100 27.51 29.79 228.005/28/2011 LMT 100 197.66 72.69 -12,497.005/31/2011 LLL 100 125.3 74.1 -5,120.00
6/2/2011 NOC 100 160.41 59.5 -10,091.008/7/2012 LNKD 100 264.63 106.7 -15,793.00
8/15/2013 NOC 100 160.41 93.79 -6,662.009/13/2013 TGT 100 77.21 62.36 -1,485.002/11/2014 LVS 100 55.09 78.32 2,323.005/21/2014 EBAY 100 59.87 51.81 -806.005/30/2014 MON 100 118.17 121.85 368.006/12/2014 T 100 33.48 34.83 135.008/15/2014 SVU 100 10.24 9.31 -93.008/18/2014 CYH 100 50.78 51.65 87.008/20/2014 UPS 100 100.62 98.8 -182.008/26/2014 SNE 100 27.51 18.87 -864.008/29/2014 JPM 100 60.89 59.45 -144.00
9/2/2014 HD 100 114.45 91.15 -2,330.009/2/2014 AAPL 100 126.6 103.74 -2,286.00
10/1/2014 SVU 100 10.24 8.64 -160.0010/3/2014 T 100 33.48 35.36 188.0010/10/201
4 SHLD 100 39.01 24.78 -1,423.0011/24/201
4 SNE 100 27.51 21.63 -588.0012/19/201
4 SPLS 100 16.05 17.55 150.002/4/2015 ANTM 100 145.16 137.65 -751.003/2/2015 NGVC 100 29.64 29.53 -11.00
TOTAL -55,574.00
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I Lost How Much???
8tracks.com
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Case Study TGT vs XRT
TGT has lower performance
Relative to XRT both flat
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TGT After The Breach
IV 25%
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Did Wal-Mart Get Hacked Too?
IV 23%
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The Whole Retail Sector Got Hacked!
IV 52% Entire retail sector
has 2x more risk than TGT
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Target Is Up Big
Marketwatch: TGT sales up 40%
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HD
Marketwatch: Yawn Who cares about HD’s Data Breach?
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HD
Bullish Channel Bounce off 50SMA
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ANTM Day Of Breach
Trendline bounce: Bullish
Single purchase of 59,894 shares @ 137.23
$8,219,253.62 single order
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ANTM
ANTM is highly correlated to SPX
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ANTM
Bullish Channel 50 SMA Up Trend MACD crossover RSI Trend up
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S&P Says It Like It Is
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I Feel Robbed!
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Data Breaches Don’t Hurt Stock Price
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Nobody Cares!
2014 Experian Survey: 1/3+ consumers did nothing after breach notification.
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Fair Credit Billing Act
Limits unauthorized charges to $50
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If Data Breaches Don’t Hurt, What Does?
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Blowing Up An Oil Rig
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Selling Dangerous Consumer Goods
“60 Minutes” flooring with toxic levels of formaldehyde.
Stock drops by more than 50%
Tilson Funds holds major short position.
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What about Target’s CEO?
He was fired because of the data breach!
The Infosec press says so!
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The Financial Reality
Pretax loss $5.4 Billion on Canada
Breach Cost: 0.191 Billion - .046 Billion in InsurancePretax loss 0.145 billion
Top Line Revenue 1/31/2015: 72.618 Billion
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Home Depot
According to earnings call: Carries $100 Million in cyberinsurance
Gross breach expenses $63 Million
After insurance expenses: $33 Million
2014 Revenue $83,176 Million
Q4 EPS +43.8%, FY14 +25.3% EPS
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Anthem
Business Insurance: Anthem has $200 Million in cyberinsurance
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Are We Spending Too Much On Security?
CEO Jamie Dimon letter to shareholders:
Security budget $250 Million
1000 Employees Computer Weekly:
JPM to double security budget
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Activist Investors
Buy shares to control company
Threaten to oust board and CEO if costs are not cut and profits returned to shareholders
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Starboard Value vs Darden Restaurants
Fund owns 8.8% of Darden
Published 294 slide presentation on why the company could make more money
Called for replacement of all 12 board members
Shareholders approved
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Relational Investors LLC vs. Timken
Investor Highlights:
Pension contributions drop from 33% of CF to near zero
CapEx cut 50% 12% of CF for stock
buybacks increased to 50%.
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Who is Third Point LLC?
The Activist Insight Activist Investing Review 2014
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Third Point LLC vs Sony
Investor Letter 3Q14 Took significant stake in
Sony May 2013 Suggested Spinoff of
Entertainment Payoff: incentivizing
Entertainment’s management to run the company more efficiently by engaging in cost cutting and laying out clear earnings targets.
Third Point sold for 20% return
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Debt Covenants
Financial Operating Activity Reporting &
Disclosure Preservation of
collateral Investment
Expenditure Asset Sale Cash Payout Management
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Leucadia loan to FXCM
Aggregate amount of sale proceeds or dividend/distributions Leucadia FXCM Holdings
Amounts due under Leucadia term loan, including fees
100% 0%
Next $350 million 50% 50%Next amount equal to 2 times the balance outstanding on the term loan and fees as of April 16, 2015, such amount not to be less than $500 million or more than $680 million
90% 10%
All aggregate amounts thereafter 60% 40%
2 year loan of $300M
10%, +1.5% per quarter up to 17%
Limits ability to merge, sell, lease, any assets
If not paid off in 3yrs Leucadia can force a sale
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Well, You Did Agree
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Get To Know Your Treasurer
Treasury normally handles insurance
Treasury protects the company from hackers
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Insurance Substitutes Certainty Qualified Promise For Uncertainty
Cyber falls under Errors & Omissions (AKA Professional Liability)
Subset of Property & Casualty Ins.
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Common Exclusions
Insured’s fees or compensation (revenue replacement)
Fines & Penalties• Fines are govt
PCI is not govt
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Know Your Trigger
E&O Trigger is a wrongful act
Sec & Privacy Trigger is a security failure or privacy event
• Legislative only
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Add-On At Any Time
Punitive Damages Voluntary
Notification Fines & Penalties Cyber Extortion
• Lockout• Threat to Disclose
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Think Like An Activist
How to run a program with little money.
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Exercise Time
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Scenario
You are a compliance consultant for an activist investment firm. A new campaign has replaced the Board & C-Suite.
The target company will be transformed into an investment holding company and operations will be spun out.
The target company recently completed an acquisition, but has not completed a merger.
Your mission is to protect the IP assets of the company while producing returns for the investors.
The CIO, CISO, CMO were used to obtain “synergies”.
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Leveraging Non-IT Resources
Compliance/Audit
FinanceLegal
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Audit/Compliance
Financial and IT Locate Assets Legal &
Contractual Implement ISO
Standards
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Legal
Patents IP Incorporates new
subsidiaries Verifies
compliance activities
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Finance
Insures assets Establishes tax
strategy for IP
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Importance of Subsidiaries
Tiffany & Co 10K 4/1/2014
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New Structure
Acme Holdings, Inc
IP Company Equipment Leasing Staffing Real Estate Operations
Data Center
Manufacturing
Logistics
Silo business in separate legal entities
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Contagion Defense
Each legal entity is self-contained
Separate bank accounts / accounting books
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Intellectual Property
Trademark, Patent, Copyright
Licenses logos, patents to other subsidiaries and 3rd parties
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Staffing Company
Workforce shifts to staffing company
Resources can be contracted out rather than laid off
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Sale/Lease of Assets
Real Estate• Lease office space
Source Code• License software
Machinery• Lease equipment
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Operating Company
Has no real assets Nothing to sue for Easily replicable
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Mission Accomplished
Revenue per employee is up
IP protected by attorneys
Financial renovations complete
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Conclusion
FUD does not sell People & creativity
are your greatest asset
Don’t be afraid to try something different
Your investors may leave you no choice.