Here’s my plan. It’s Saturday, the day I tend (with several long lapses in recent years) to post about investing and the markets. Here’s reality. It’s Saturday and the more cyber-astute are reacting to and recovering from Heartbleed, a phenomenal security hole in the Internet. Finding such a hole in the Internet is like finding out that a business couldn’t trust the electricity, water, and sewers to keep working; and that for the last two years sparks from the wires were scorching the walls, drips were rotting the foundation, and messes were piling up in hidden corners. Maybe everything is fixed, but someone’s going to have to go down into that basement and make sure – and be prepared for anything, (like Heartbleed’s cousin?). This can lead to a bit of insecurity, and investors don’t like insecurities.
The Internet created modern commerce, but not intentionally and not alone. The Internet existed for years doing what it was designed to do, connecting up various organizations so they could send data around without having to create a tape and drop it in the mail. As more people began to play with it outside of work, it blossomed while being derided as trivial. There were plenty of guesses about what it could be used for, but most of the non-work activity was discussions and hobbyists. (Serious historians can slice this gross-simplification to shreds, but stick with me here.) Then came the web, and the traffic went from text to graphics. The Internet become prettier. In addition to everything else, businesses began creating pages as digital storefronts; but really nothing more than just brochures, because they were trying to get people into the malls or catalogs. Add a bit of security though and something serious like payments could happen, and did. Hello, Amazon.
Regardless of the distrust in the investment community, my investments did well in that era, and even afterwards because I trusted in the acceptance and growth in the Internet.
Aside from stock bubbles and revolutions within industries, the Internet has grown because it has become more secure. We rely on online transactions for shopping, but also for paying bills, investing, signing contracts, talking privately, and now for storing our files in the cloud. Heartbleed proved the immaturity of the system that we’ve come to depend on and take for granted. If you can’t trust password protected accounts what can you trust? And, if you can’t trust the Internet are you prepared to retreat to paper, pen, envelopes, stamps – or even driving to the store and being limited to what they have in stock?
Despite any damage to trust in Internet transactions, businesses based on online commerce will continue. There may be a sudden spike in the demand for digital security specialists, but we’ve reached a new norm. We’re as likely to abandon the Internet as abandon electricity.
The trend I am watching is the general acceptance of diminished trust. Financial institutions lost their veneer when we saw the risks they took in the financial markets. Government shutdowns primed us to consider the possibility of losing our central authority. The Vatican continues to deal with its scandalous priests. Current economies clashing with political wills are challenging the primacy of various currencies. Tens of millions of shoppers found that their credit cards were compromised by people expending very little effort. And now, Heartbleed. I’m looking for the trend that will reinforce trust, but I haven’t found it. (The effect of writing on the writer. Having written this paragraph I noticed that the paper covering my computer’s camera had fallen. A few months ago I saw the camera light go green for no reason. Pardon me as I put the paper back in place.)
It is very easy to get scared by staring at the imperfections in the system. I definitely have concerns, but I know that my best plan is to assume everything will return to normal because we rely on this new way of living to the point that we can’t go back without trauma.
I believe it is also wise to be very aware of the imperfections in the system, and because trauma can happen. People taking on the challenge of actively managing their personal finances are to be commended. Our society is based on a currency economy. It certainly isn’t barter. But, assuming that everything will stay the same and always work ignores one of the most powerful tools available to everyone, diversification. What if online transactions couldn’t be trusted, even if for a while? What if online communications weren’t secure? What if the predominant currencies lost their dominance? Only the wealthiest have sufficient resources to cover every contingency, but at least the rest of us can take some steps to cover the contingencies we consider most likely.
Here are some of my Personal Diversifications: (in addition to diversifications within my portfolio, of course.)
- One of the benefits of living simply is that I am less tied to the various aspects of societal infrastructure. I can do a lot with just a bicycle.
- I live in a rural area where plenty of folks are happy to grow and sell food. I’d like to live even more simply by living in a house that could go off-grid. We lose power here often enough that secondary power and heat are normal parts of conversation.
- As much as possible, I buy things that can do more than one job; and if something only does one thing I better need that frequently or in an emergency.
- Through necessity I am generating income by relying on various skills: project management, strategic planning, social media, speaking, teaching, writing, etc. Much better than only having one skill.
- I’ve even shopping around for crypto-currencies as a diversification against the US dollar. Why not?
Trust is under assault. If the NSA didn’t know about Heartbleed, then the NSA is not living up to their reputation – and maybe not even their mission, goals, or budget. If the NSA did know about Heartbleed, then by no saying or doing anything publicly then we may doubt their intent. Did Heartbleed reveal the NSA as incompetent or as immoral? In either case, there’s less reason to trust the NSA. Or maybe, trust was always under such suspicion but it wasn’t until we had an instantaneous and ubiquitous communication medium that we could hear each other’s doubts.
In the meantime, my stocks await a positive catalyst that I trust will arrive and I’ll continue to investigate the best way and time to diversify into a crypto-currency – ironically trusting to the very Internet that is a little less trust-worthy now.