Since 2005, Ransomware has been the most common cyber threat. You may be asking yourself “what is ransomware?” Ransomware is a virus designed to block parts or all of your computer from use until a sum is paid to the entity behind the virus. The first ransomware occurred in 1989 by a Harvard graduate named Joseph Popp. Since then, Ransomware has grown to cost global citizens and business roughly $1 billion in 2016. You may have heard of a ransomware attack that spread across the globe in mid-May of 2017 named “WannaCry”. The results of this attack resulted in close to $4 billion dollars in payments. Clearly, these payments are on the rise.
Cyber defense continues to grow as a sector in the marketplace, so let’s take a deeper look at their impact as we step closer towards achieving financial fluency.
How Do Cyber Attacks Work?
The origin of ransomware generally occurs when an hacker sends a victim an email with a link or file to open. This is known as the “trojan”, gaining its name from Trojan Horse that held Greek soldiers. The file is much like what happened in history, once you bring it in past your city walls, or your firewall on your computer by downloading it or clicking on it, your computer is then infected with the virus locking you out of files, programs, and even your entire computer. Global security has been changed by ransomware. There is now security software you can download on your computer to help protect your computer as well as companies spending millions to protect their systems. As a general rule, don’t open any links or attachments you receive unless you know AND trust the sender.
But how exactly do cyber attacks impact the marketplace? Let’s take a closer look as we step closer to achieving financial fluency.
Cyber Attack’s Effect on Investing in Public Companies
What effect do cyber attacks have on companies? Let’s take a look at the effect it has had recently on Danish shipping giant A.P. Moller-Maersk. Maersk is so large that it is responsible for 1 out of every 7 containers shipped globally.
When it was announced to the public that Maersk was a victim of a cyber attack that locked them out of several of their systems around the globe, investors sold off the stock and caused a 1.55% decline in an hour. This decline was the result of potential fears that the cyber attack may result in large payments that were unexpected and could ultimately hurt the bottom line and therefore the value of the company. When it was announced they were able to successfully beat the cyber attack, the shares rallied 2.75%.
Generally, cyber attacks on a company result in short-term declines but in the long term don’t affect the stock price. That is usually because the makers of these viruses know that companies systems and files are backed up and can be replaced. Therefore, if the price they are asking for, the ransom, is high, companies will kill the affected systems and have them replaced. Though, if a company can’t fight off the virus and the ransom is low, many will just pay it as it is much more cost-effective.
How to Invest Smarter with Cyber Attacks
One publicly traded company that has performed very well recently is cyber defense giant FireEye Inc. (FEYE). When the WannaCry attacks took place, FireEye’s stock price rose 10% in just 3 days. In the same 3 days, most major tech stocks were down 1-2%. This raises the idea that owning some cyber defense stock may be a very good hedge against the possibility that one of your holdings is affected by a cyber attack. In 2004, the global cyber security market was worth just $3.5 billion. In 2017, it is now worth about $150 billion and by 2021 analysts at top banks such as Goldman and JP Morgan expect it to be a $1 trillion industry. By surrounding yourself with a greater understanding of the markets, you can continue to step closer to financial fluency.