To the rational layman, the biggest story in the markets this week is the huge sell-off in the major market averages.
Stocks in the Dow, S&P 500, Nasdaq Composite and Russell 2000 all have plunged below their respective 200-day moving averages, and that’s got Wall Street (and Main Street) very worried.
Yet perhaps an even a bigger worry for many on Wall Street has nothing to do with the price of stocks.
The new wave of panic swirling around the brokerage profession is whether people will discover their broker has been cheating on his or her spouse.
According to industry advocate AdvisorHUB, stockbrokers who used the cheating website Ashley Madison ” … are scared as **** … ” over the release of the data obtained from a hack of the “dating” site.
In case you haven’t heard, Ashley Madison is a dating website for married people looking to have affairs.
The website, which is owned by Toronto-based media company Avid Life Media Inc., boasts over 37 million “anonymous members.”
Yet after a group of hackers called the “Impact Team” breached the site earlier this summer, those “anonymous members” have been worried that they wouldn’t be anonymous for long.
This week, the hackers put out the names in the so-called “dark web” or “deep web” — a place where most regular web surfers never go.
Still, the names are trickling out via various web sources, including this site, where you can actually find out if someone you know had an Ashley Madison account.
According to AdvisorHUB, the Dow’s troubles this week pale in comparison to the worries in the financial industry over the name dump by the Ashley Madison hackers.
(According to) an adviser on the East Coast, “This Ashley Madison thing has been blowing up my phone for the last two hours. Guys I’ve known for the past decade are freaking out over this. Not surprising that advisers were tapped in at the far end of the bell curve compared to other professions. As a group, advisers have more to lose in terms of personal and professional assets.
To sum up the commentary from a couple guys I know, they are ‘scared as ****’. You can believe that two new searches that are accompanying the ‘deep web’ are private investigators and hackers for hire. Guys have talked about hiring hackers to somehow remove their names. I know of three who have already done exactly that. The market could drop 2,000 points and it wouldn’t cause the same kind of panic as this.”
Isn’t it comforting to know that some brokers are using the money they make from the fees they charge clients to hire hackers to save their butts from being outed for infidelity?
This is why it pays to take into account character issues when you hire a broker, or anyone you are paying to do a job for you.
The way I see it, there are two very important takeaways here in addition to the character consideration.
The first is put quite nicely by AdvisorHUB, in the final cautionary paragraph of their story:
Morality aside, we live in a new age where your digital life is just a few clicks away for everyone to see. Don’t do stupid **** and stupid **** won’t generally happen to you.
That’s a great motto to live by, but there’s also a financial angle to this that’s just as important.
Earlier this year, Avid Life Media announced that it hoped to raise $200 million in an Initial Public Offering in London in 2015. The company tried, and failed, to IPO in Canada.
The company’s biggest selling point was its brand, and the privacy it offered to its customers.
Now, however, that privacy claim has been shattered — and with it the bedrock of the Ashley Madison brand.
The big takeaway here is to never rely on a company’s brand strength as the main selling point when deciding on whether to own the stock.
Brand strength is great when it leads to a consistent record of strong revenue, strong earnings and most importantly — strong free cash flow.
Absent those real-world metrics, brand strength alone — not to mention a brand’s promise — just does not provide you with the kind of confidence markers you need to make an appropriate investment decision.
I know many people have strong opinions about Ashley Madison, what it says about our current culture, and what it says about cyber security and the vulnerability of online users.
U.S. stocks plunged again Friday, with the Dow sinking more than 500 points as traders continued to remove risks due to fears over slowing global growth. On an intraday basis, the Industrials entered correction mode, as they’ve dropped more than 10% since their May 19 intraday high.
In the broader markets, two-thirds of S&P 500 stocks are down 10% or more, with a quarter flirting with bear-market territory, according to CNBC.
It was the worst week of 2015 so far for stocks. Elsewhere in the news today …
• It was also an ugly day for oil, as oil futures sank below $40 a barrel for the first time since the Great Recession. Oil suffered its eighth-straight weekly loss, the longest streak since 1986.
• Tech stocks had their worst week in four years, as Google (GOOGL), eBay (EBAY), Microsoft (MSFT), Facebook (FB) and Qualcomm (QCOM) all were slammed by sellers.
• Treasury yields dropped Friday for a third-straight day, with the 10-year yield at a nearly four-month low and heading below 2%.
• Gold futures surged more than 4% for the week, as investors fled from stocks and moved into the safe-haven metal.
Good Luck and Happy Investing,
Uncommon Wisdom Daily
P.S. If you were disheartened by the big drop in the Dow this past week, I want to help you start looking at it as an OPPORTUNITY. Not just to buy some good stocks at better prices, but to get IMMEDIATE, non-refundable investment income in your brokerage account or IRA.
In fact, Nilus Mattive is doing it right now in his own Roth IRA. He shows you how AND tells you about one of the stocks he’s targeting in this unusual new video!