• Are there any cybersecurity companies with promise?
  • Do insiders know something we don’t?
  • “Seems like giving Big Brother a key and a room to sleep in your house… ”

Dear Reader,

Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology. Today, I’ll do my best to answer them.

If you have a question you’d like answered next week, be sure you submit it right here.

The future of cybersecurity… 

Let’s begin with a question on cybersecurity innovations… 

It seems like there should be a good play on new technology related to cybersecurity. Cybersecurity is obviously a huge need with all that is going on. Starting with a new operating system would make sense, but that’s not an easy thing to do. 

There must be some new innovative tech out there, perhaps utilizing AI [artificial intelligence], that would capitalize on current needs. Is there any new technology company with promise?

 – David M. 

Hi, David, and thanks for sending in this question. You’re absolutely correct that there’s a huge need for innovative cybersecurity solutions right now. And it’s certainly a timely question, as October is Cybersecurity Awareness Month in the U.S. 

As we’ve seen this year, cybersecurity attacks are on the rise. According to a recent study, 86% of businesses report having at least one person in their organization connect to a phishing site. Likewise, malware and spyware are constantly evolving. 

The scale of the problem is hard to overestimate. This has already been a terrible year. It’s estimated that the damages caused by cybercrime will cost the world $6 trillion this year alone… And that number is expected to jump to more than $10 trillion by 2025.

And it’s not just the expense of cybercrime. We saw firsthand how disruptive these attacks can be over the summer with the Colonial Pipeline hack, which was swiftly followed up by the JBS meat distributor hack. These events caused gas and food shortages… and revealed the desperate need for stronger protections of our nation’s infrastructure. 

Back in August, I covered one private company working on this issue – Nozomi Networks. Its valuation had nearly tripled in value in just three years. 

That wasn’t a big surprise given that it’s working to protect critical infrastructure like government facilities, water, and electrical utilities. What really caught my eye, of course, is that even the CIA’s investment arm took part in its recent funding round. 

The government knows how weak our critical infrastructure truly is right now. The CIA and other three-letter government agencies need to get ahead of the nation’s cybersecurity weaknesses.

That’s why it’s so important for cybersecurity companies to be proactive in finding solutions. And you’re absolutely correct that artificial intelligence (AI) is helping them find those solutions. 

One cybersecurity company we added to our Exponential Tech Investor portfolio this past March uses artificial intelligence (AI) to recognize suspicious activity on a computer network… and can even “catch” the bad actor before the crime is committed. [Paid-up subscribers can find the issue here.]

The thing that makes cybersecurity difficult is that it is a systematic process as much as it is a product. Protecting corporations, individuals, governments, etc. isn’t as simple as just installing one key piece of software. 

Networks, by definition, are porous. Data has to flow in and out, which also means some weaknesses need to be monitored and managed. Given how much data traffic there is on any network, the only way to manage inspecting all the traffic is by using artificial intelligence and machine learning.

Crowdstrike (CRWD) and Cloudflare (NET) are two other favorite companies of mine in this space, but I don’t recommend that anyone buy these stocks. They are trading at ridiculous valuations. Anyone investing at these levels is guaranteed to lose money.

CRWD trades at an enterprise value-to-sales (EV/sales) of 56, and NET trades at an EV/sales of 106. These are great companies with great products, but we’ll have to wait for a major pullback before they trade at attractive valuations.

So the good news is that there are some top-notch players in this space working hard to stay ahead of the curve. And if any readers would like to join us at Exponential Tech, simply go right here for more info.

What we can learn from insider selling… 

Next, a reader wants to know more about insider selling… 

Happy Sunday, Jeff, on this Canadian Thanksgiving weekend! 

I’ve noticed in the last few weeks that there have been several huge insider sales from top executives in many of our stocks. I’m trying to understand what this means. After all, if a stock has massive upside possibilities just around the corner, wouldn’t executives hold their shares or buy more? All of the stocks have declined since.

I know that company executives do take some profits at some point, maybe even just to buy that new yacht or pay for their daughter’s ridiculously expensive wedding in the Hamptons. Is this time of year just a typical time for CEOs and top execs to take their cut? Or is there some doom looming when they do that? Something they know that we don’t?

Are major insider sell-offs normal? Good? Bad? Ugly? Thanks for your brilliant insights and for all you do. 

 – Janet P. 

Hi, Janet, and thanks for being a subscriber. Happy belated Thanksgiving! I’m looking forward to celebrating here in the U.S. next month. I’ve already ordered my fresh turkey well in advance, as I am expecting shortages even in turkeys this year! 

As for your question, selling by insiders can happen for many reasons, so context is always important when looking at this sort of data. 

As you noted, often insiders might simply want to spend money or diversify their portfolio – especially if they receive stock regularly as part of their compensation package. It is quite normal for executives to have the majority of their wealth tied up in just their company’s equity, so it is always smart to reallocate part of that into other asset classes. 

And while insider selling can be a bad sign if it’s part of a large trend among leadership, it definitely doesn’t mean that the company is doomed. 

In fact, some insiders create an automatic trading plan that executes automatically on a regular schedule. This helps them avoid allegations of illegal insider trading using non-public information. Others may sell prior to a blackout period if they know they’ll want the funds handy. 

Likewise, if a stock has run up for a while, insiders may simply choose to take profits, just like normal investors, even if they believe it has further to go. With some of the inflated valuations that we see here and there in the market today, I’d say that selling some stock at high valuations and reallocating is a smart thing to do. 

Generally, we can gain additional perspective by evaluating how much stock was sold compared to the position size an insider still holds. Even if an insider sells millions of shares, that might only be a mere 1–5% of their whole position. That’s not much to be concerned about. But if an executive sells 50% of their entire holdings, that would be a warning sign. 

So the key point is that the context of the sale or purchase is what we need to understand. Regularly scheduled sale plans, percentage of overall holdings, economic health of the company, relative company valuation, any changes in the executive management team, and personal situation (i.e., nearing retirement, or needing to sell stock to pay taxes on a stock grant) are all useful indicators to determine if we should be concerned about those sales.

And rest assured – my team and I always keep an eye on this kind of activity. We’ll always let readers know if we need to act in response to any sort of insider selling. 

Conflicting feelings about Astro… 

Let’s conclude with some reader feedback on Astro, Amazon’s home robot… 

Last week, we covered this new robotic assistant powered by Amazon’s Alexa AI. Astro is loaded with sensors, employs facial recognition, and carries a bin, enabling it to do everything from home security to fetching small objects.

I asked whether any readers would be interested in bringing home such a device… and the floodgates opened, with opinions falling on both sides of the aisle… 

I would not bring Astro into my home, and the reason is I wouldn’t trust Amazon not to have enabled Astro to spy on everything seen, said, or done in the home. Like the great majority of people, I’m not doing anything I need to fear being found out or to be ashamed of, but I am ancient enough to have a high expectation of privacy. I remember the Vizio TV spying scandal, and also subscribe to the widely held belief that the ubiquitous smartphones are even more capable spy devices, and that they are actually used as such. 

 – Al R.

I’d be pleased to have an Astro in the home, and we may well wind up with one. 

 – Tom B.

Astro robot would allow Amazon to have access to too much personal information. I would not want it in my house. 

 – Madelyn B.

No. I have no interest in a robot following me around. It would also be a constant problem with our dog. I think Amazon laid an egg with this one. 

 – Errol R.

Hello, I’d rather have an Astro in the house that I know about than an intruder that I cannot see. However, a person would need one for each floor. Also, the software to run it would actually have to work much to the contrary of existing security systems’ software. Thanks for all your ideas. 

 – John F.

Hi, Jeff, I worked at Apple for about ten years from the early ’90s to 2003, so there’s my bias. I don’t use Google products or Amazon products that involve Alexa. 

Astro seems capable of collecting a LOT more data than previous Alexa-enabled products. My first concern here would be safety. What information does a bad actor gain if they manage to hack Astro? A map of your home? The combination to your wall safe? So no surveillance products from Amazon for me, thanks. 

 – Joe B.

Hi Sir, I believe this product, with some improvisation, will be useful for families who have elderly people. The robot should be able to pick up water, medicines, etc., and reach out to elderly residents or differently-abled people. Here in India, we have to employ full-time house helpers to do these things for the elderly in the family. So this is one area where it can be useful. 

 – Salil N.

Jeff, thank you for more great coverage of emerging technologies. My first thought on Astro was how handy it could be for people with disabilities or the elderly. Astro could perform small chores for them and allow family members to monitor them from a remote location like work or their own homes. Just one of the obvious uses. 

 – Jack F.

Hi, Jeff, while Astro on the surface seems to be the newest version of Rosey from the Jetsons (by the way, the dog’s name was coincidentally Astro), I’m not putting her in my home anytime soon. Seems to me like giving Big Brother a key and a room to sleep in your house. 

For the time being, I’m happy to retrieve my own water. Your articles and amazing information and recommendations have helped me grow my wealth exponentially. Many, many thanks.

 – Roberta B.

Hi, Jeff, I think Astro can potentially be of great service to families with elderly people who need some monitoring and assistance. For example, for elderly people living alone who suffer some loss of cognitive abilities $1,000 is very affordable. I wouldn’t hesitate to buy one. 

 – Lorraine S. 

Thank you to everyone who wrote in. What a great range of comments from many different perspectives. And thank you – I had a good laugh on a Friday morning from a couple of them.

It’s clear this topic struck a chord in many people. And it’s wonderful to have such an engaged readership. What people shared will certainly be considerations for Amazon as it develops and refines its robotic offerings.

I share privacy concerns. This invasion of our privacy and personal freedoms by large tech companies (Google, Twitter, and Facebook in particular) is deeply disturbing to me. Amazon has been a better actor in that regard, but not as good as Apple, which has been the best of the bunch in my opinion. That said, that too could change.

What I really liked about everyone’s comments is that it demonstrates that each might have different priorities in terms of needs. For some of us, privacy is most important. For others, convenience is the driver. And for others, it may be useful in providing support for those with disabilities of any kind.

If the world’s adoption of Facebook and Google is any guide, the majority of us will be willing to sacrifice certain levels of privacy in exchange for the convenience in improvement in quality of life that these kinds of technologies have the potential to bring. 

One thing is certain, however… This is the direction of the future. We’re going to see more and more of these kinds of robotic and digital technology proliferate. This is a trend we are going to stay on top of. 

AI is what makes robotics incredibly useful. This convergence of the two technologies, which is happening right now, will lead to an explosion in technological advancement, automation, and of course… great investment opportunities.

That’s all we have time for this week. If you have a question for a future mailbag, you can send it to me right here. 

Have a good weekend.

Regards,

Jeff Brown
Editor, The Bleeding Edge

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