Hack of SEC’s System Shows the Drawbacks to Financial Market InvestmentsTrevor Gerszt
The US Securities and Exchange Commission (SEC) announced this week that the electronic system it uses for storing filings from public companies was accessed by hackers. The Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system was first hacked in 2016. But it wasn’t until August 2017 that regulators realized that those hackers could have used the hacked information in that system to engage in illegal trading, at which point they launched an investigation.
Questions surround the SEC’s decision to take so long to reveal the hack, particularly as deficiencies in its system were discovered months ago. It’s particularly hypocritical given the SEC’s stance towards public companies that have found themselves victimized by hackers.
Hackers May Have Traded on Stolen Information
The filing information could have been used by hackers to gain advance knowledge of companies’ financial and earnings information before they were publicly available, enabling them to trade on that knowledge and reap profits. Aside from being a scathing indictment of lax security practices at SEC, this incident also underscores the problematic nature of equity investing.
Many investors who invest in stock markets treat it as though it is gambling. Rather than treating stock ownership for what it should be, a chance to become a part owner of a company with great growth potential, they view it solely in terms of the potential appreciation of the stock price. At the first inkling of bad news, they seek to cut their losses by selling their stock.
It’s difficult enough for ordinary investors to keep on top of market developments and compete against professional stock traders to maximize returns. Now that we know that hackers can infiltrate government computer systems and reap profits before anyone else has a chance, it’s more obvious than ever that stock markets aren’t built to help the little guy build up and protect his assets.
The Superiority of Gold to Stocks
Compare that to gold, which according to its detractors just sits there in a vault doing nothing. Of course, it’s not actually doing nothing. Gold’s value has increased faster since 1971 than the S&P 500 and the Dow Jones Industrial Average. And you can’t hack gold like you can hack a software system.
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Because gold’s price depends more on general trends and geopolitical factors, it’s pretty much immune from insider trading and pump and dump schemes that pervade stock markets. Gold “just sits there” in a vault, protecting its owner’s wealth against inflation year after year. That’s why so many investors trust gold to protect their retirement savings. Protection against stock market crashes, hackers, and inflation makes gold an ideal asset.