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Phantom Ships Carry Untold Sum of Investment Wisdom

This week, a mysterious ferry set sail from California to North Korea.

Then a tugboat hightailed it from the St. Johns River in Florida to Lake Superior – in two minutes flat!

And a shadowy oil tanker made a beeline from Louisiana to Cuba.

Now, all of these were phantom ships (i.e. – completely imaginary).

Yet they all showed up as legitimate vessels on the worldwide system monitored by shippers, traders, economists and researchers alike.

Is that a problem? You better believe it!

There’s also an untold sum of investment wisdom contained in this story.

A Paid Hack

Ever since the 2004 ruling by the International Maritime Organization convention, ships have been required to carry automatic identification systems (AIS) and regularly report vital info – including identity, position, speed and status.

Think of it as the maritime version of air traffic control. It’s all in the name of increasing safety.

The problem is, the signals get compiled by websites like AISLive.com and MarineTraffic.com. But no one owns the actual technology, which leaves the network frighteningly vulnerable to hacking.

Over the last six months, at the behest of U.S. government agencies, internet security company Trend Micro Inc. (TMICY) set out to expose those vulnerabilities. And it didn’t take much effort.

With a $1,000 piece of equipment, Trend Micro’s Kyle Wilhoit says, “We can literally move, create and modify existing boats, as well as boats that don’t even exist. Some nerd in a basement can do that.”

John Murray, Marine Director at the International Chamber of Shipping in London, says, “When signals can be spoofed or inaccurate for whatever reason, inevitably this is of concern.”

You think?!

Cyber Security: Your Life Could Soon Depend on It

In our increasingly digitized and connected world, the ease at which phantom ships can be created serves as the latest glaring example of why we need robust cyber security.

Forget about shipping or national security, our daily lives could soon depend on it.

Consider: In a recent 60 Minutes interview, former Vice President Dick Cheney revealed that he disabled the wireless function on his defibrillator to protect against a potential attempt on his life. Yes, he thought someone would hack his heart!

As I said, this isn’t just about vital networks being secured.

It’s about a day in the near future when our lives become more dependent on the security embedded in our devices than our physical fitness levels.

Scary thought, isn’t it?

Let’s not go down those roads today, though. Instead, let’s focus on the investment implication.

The opportunity is obvious, really. Go “long” leading cyber security companies like Check Point Software Technologies (CHKP), Fortinet (FTNT) and Symantec (SYMC).

(If you’re not one for individual stocks, hang tight. I’m sure it’s only a matter of time before a cyber security ETF launches.)

Undoubtedly, the latest growth statistics being bandied about – like Gartner’s call for security spending to rise 39% to $93 billion in 2017 – will end up being too conservative.

And as I’ve said before, companies operating in growing markets (that keep increasing sales and profits) can’t help but rise in price.

Now, beyond the specific investment opportunities, there’s also wisdom to be gleaned from this story about the dangers of false signals.

You see, investors and traders are always after an informational advantage. In this case, they routinely track merchant vessels to try to get an early bead on activity before official trade figures are released.

If they succeed in sniffing out a new trend in the data, they can position their portfolios to profit. Obviously, false signals can torpedo such efforts and lead to losses instead of gains.

Therefore, if we routinely follow anecdotal or periphery data to make investment decisions, we need to make sure it’s legitimate before we act. Or, as the late Ronald Reagan was fond of saying, we need to always trust, but verify.

Bottom line: Beware of phantom ships (both the literal and figurative varieties) in the data you track. And invest in their eventual eradication, thanks to market-leading cyber security firms.

Ahead of the tape,

Louis Basenese