buy the dip

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 John.Foster@bfgllc.n

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.