Market Wrap-up for Dec. 3 - 2014: The Year of the Hacker

Market Wrap-up for Dec. 3 – 2014: The Year of the Hacker

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2014 has undoubtedly been the year of the “hacker,” as the issue of cyber-security has been thrust into the limelight. As an investor, the issue may seem somewhat removed at first, until you realize the negative impact that data breaches have had on certain stocks. Now, investors have to keep the issue of cyber security in the back of their minds when it comes to making an allocation; this is especially prevalent as we enter the holiday shopping season.

Data Breaches in 2014

Data breaches and hacks are infuriating for everyone involved, as there is no way of controlling the event and they are nearly impossible to predict. This year has seen a number of big-time data breaches and hacks that have caught the eye of Wall Street:

  • Target (TGT): The Target data breach occurred in late 2013, but the impact was largely felt in 2014. Up to 70 million cards were stolen in December of 2013, causing TGT to sink and leaving a nasty black mark on the company’s image. The costs of dealing with the breach have reached into the hundred millions and earnings have taken a hit as a result.
  • Home Depot (HD): In late 2014, Home Depot reported that it too was hacked, with 53 million email addresses and 56 million credit cards being compromised. In this case, investors shrugged off the massive breach and the stock barely felt any pressure (though as we saw with Target, it may be months before the costs of dealing with the breach are known).
  • Staples (SPLS): Between July and September of 2014, Staples was the target of a hacking scheme that impacted roughly 100 stores. Details on this breach have been less public, but the company has assured consumers and investors that it has handled the issue. The stock took a hit initially, but continued higher shortly thereafter.
  • Microsoft (MSFT): On Monday of this week, hackers known as the Lizard Squad took credit for temporarily downing Microsoft’s popular Xbox Live service. What is most peculiar about this case is that it does not appear anything was taken, the service was simply taken down just because the hackers could.

The New Norm?

It is hard to say how data breaches like these will progress as time goes on, as it seems that attacks of these types are incredibly difficult to stop. As an investor, dealing with data breaches from retailers may be a more frequent occurrence as time goes on.

For investors, preparing for this kind of issue is nearly impossible. If you are someone whose risk profile does not fit with the possibility of flash sell-offs in the short term, you may want to think twice about investing in retail dividend payers. However, for most investors, this issue will not be a deterrent from investing, but rather a thorn in the side of your portfolio that is almost always alleviated with time.

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