Domains as long-term investment strategy

[groundctrl]

How solid is the idea of domains as medium- to long-term investment? As I understand it, domains aren't exactly anywhere close to as risk-prone as stock investment, and the ROI is much higher over a period of, say 3-5 years.

Could domain investors, those that make smart decisions and HOLD, be considered the web's value investors? What do you guys think?

 

[.X.]

The investors are the biggest holders of premuim traffic names,LLL's, Such as "Doc" and the Dot US cartel, "Elequa" = another big investor, investing and holding is the best answer to large returns on your DN investments.

 

[-NC-]

As I understand it, domains aren't exactly anywhere close to as risk-prone as stock investment

Of course that depends on what you buy. If you get an index tracker, stocks will out perform cash, bills, gilts (e.g. "stable" investments), by returning average 20% return a year (over the long term), so they aren't really risk prone - as long as you hold for at least around a decade.

If you buy individual stocks, without doing proper research, then yes, there's a risk (more like a certainty) that you'll lose your money (or make less than you would have with an index tracker).

AFAIK, there is no index tracker for domains, and if you buy junk, you'll probably still lose your money (same as with stocks). (I've certainly bought my fair share of junk domains :red: ).

 

[groundctrl]

AFAIK, there is no index tracker for domains, and if you buy junk, you'll probably still lose your money (same as with stocks). (I've certainly bought my fair share of junk domains :red: ).

the way i see it, the majority of web people know a lot more about domains than they do about stocks or the market in general, so they'd generally be making smarter decisions about domains purchases than stock purchases.

 

[-NC-]

Don't get me wrong, I do think domains can be good investments (in fact I'm banking on it) - I'm just saying that domains are not necessarily _less_ risky than stocks.

 

[Phronesis]

Of course that depends on what you buy. If you get an index tracker, stocks will out perform cash, bills, gilts (e.g. "stable" investments), by returning average 20% return a year (over the long term), so they aren't really risk prone - as long as you hold for at least around a decade.

What stock index are you looking at that outperforms cash by 20% per year?

Cash and short term bonds average @ 5.5%. S&P 500 historical average is around 10-12% Small and mid caps maybe 14% but there's nothing doing 25% long-term as that kind of growth is simply unsustainable.

As far as domains, you could compare high quality type-in generics that generate significant revenue to value stocks as they do typically sell for 8-12 years revenue (sometimes more). But not too many stocks will pay a 12.5% dividend which is the equivalent of a domain selling for 8 years revenue.

Certain domains like LLL.coms could be compared to growth stocks because they generally don't generate much revenue (dividends) which makes their price multiple significantly higher.

If the OP is talking about all domains in general (ie, like 99% of those listed in the appraisal section) then most are like investing in penny stocks. You make an ultra cheap investment and hope it will go through the roof. But most fall flat on their face.

Keep in mind that the domain market is really not much more than a decade old. That doesn't give much history to show bull vs. bear markets but like any investment, domains will not only rise in value but fall also.

 

[-NC-]

What stock index are you looking at that outperforms cash by 20% per year?

Er, none. my mistake. You are correct, its more like 10% on average.
(I also didn't mean out performing by X, I meant out performing by returning X)

I only meant to address the OP's stated understanding that stocks are more risky than domains, which I do not think is necessarily the case.

 

[groundctrl]

As far as domains, you could compare high quality type-in generics that generate significant revenue to value stocks as they do typically sell for 8-12 years revenue (sometimes more). But not too many stocks will pay a 12.5% dividend which is the equivalent of a domain selling for 8 years revenue.

Certain domains like LLL.coms could be compared to growth stocks because they generally don't generate much revenue (dividends) which makes their price multiple significantly higher.

If the OP is talking about all domains in general (ie, like 99% of those listed in the appraisal section) then most are like investing in penny stocks. You make an ultra cheap investment and hope it will go through the roof. But most fall flat on their face.

Keep in mind that the domain market is really not much more than a decade old. That doesn't give much history to show bull vs. bear markets but like any investment, domains will not only rise in value but fall also.

i was more talking about high priced LLL.com names and the like, one word generics, etc. am i wrong in saying that the value of these is pretty much already proven-- at least by what we've seen in the past ten years of domaining, as you've said?

if so, then basically what we need to do is make smart decisions, hold them for a while, then find domainers willing to carry that further and move our profits onto higher value domains. right?

I only meant to address the OP's stated understanding that stocks are more risky than domains, which I do not think is necessarily the case.

right--- i guess what i really meant to say is that, since i know more about the web and domains than i do about stocks, they're generally a smarter way to begin investing. of course research needs to be done in both cases, but i start with an advantage on the domain side.

 

[yandig]

I agree that it makes more sense to invest in what you know. Unless you are an employee or board member of a big corporation, then you don't know much about the companies that you hold stock in. Yet, people (me included) routinely throw thousands of dollars into stocks and mutual funds.

Domains are attractive, because I can have some control over their use, and therefore the eventual sales price. Also, the downside risk with domains seems extremely low. Unless the internet as we know it ceases to exist, domains should continue to be a valuable commodity.

Now, will 3-letter .net names be selling next year for $500 or $5,000? I can't tell, but the trend seems upward from here.

***By the way, i have my own stock market blog, and maintain a (mock) portfolio of stocks that I would invest in if I had $100,000. The portfolio has gained over 80% in three years, but I still choose domains

 

[VURG]

Short term investing in domains is very speculative. My gut feeling is that to find a good offer from an enduser with domains, you need to factor a waiting period of over 5 years per domain. (Below 5 and your lucky)

Go to a bank with a collection of domains and see how much they will let you borrow against them. With Real Estate and stock, the bank will let you borrow against the value of your portfolio to use borrowing to increase your return on further investment. Unless, you have a proven track record of doing well with your domain investments, they will probably tell you to stop waisting their time.

That said, I'm contemplating moving a significant percentage of my superannuation investments away from shares and towards domain names as I expect to get a better return in the next 5 years on domains than shares. I believe that the current rate of growth of the cashflow in the internet is faster than the average rate of business growth and hence domains have more potential for growth. This rate of growth will slow down with time and should be a lot more similar to business growth rates in time.

the way i see it, the majority of web people know a lot more about domains than they do about stocks or the market in general, so they'd generally be making smarter decisions about domains purchases than stock purchases.

Most people I know where I live do not understand domains and would be a lot smarter buying blue chip shares than domains.

 

[floatingworld]

If it is just a numbers game then you are only going to follow the indices, you are going to have a balanced portfolio and some of your money might be invested in a handful of LLL and nothing much more. Whether you are going to be a specialist niche investor in domains is the real question and that mostly depends on enthusiasm, ability, time available and your pocket!

 

[accent]

..... Also, the downside risk with domains seems extremely low. Unless the internet as we know it ceases to exist, domains should continue to be a valuable commodity....

Take a look at Registerfly - They STILL are in business, taking people's money. 75,000 domains have been lost at Registerfly, well over a million are still stuck there. Oversight in the domain market is near non-existant.

There is no UDRP in the stock market. From out of nowhere you get an email. Some company you never heard of wants your name, calling you a cybersquatter. You now have three weeks to prove that you have a right to keep the name and are not using it in bad faith. Minus your account about $5,000 for an attorney, win or lose.

The internet changes extremely rapidly. In 10 years a new addressing system could supercede domain names. There is huge money to the winner if they pull that off.

Other than the very short domains there is not much to go on in evaluating the value of premium names. You do not know what you can sell a name for until you get an offer. Liquidation value is as low as 10% of end user value. And for lower value domains renewal costs are substantial.

I have domains, so I am accepting these risks. I hope for much greater profit as compensation. That potential is certainly there. But domains are a risky investment.

 

[Paddy]

How solid is the idea of domains as medium- to long-term investment? As I understand it, domains aren't exactly anywhere close to as risk-prone as stock investment, and the ROI is much higher over a period of, say 3-5 years.

Could domain investors, those that make smart decisions and HOLD, be considered the web's value investors? What do you guys think?

In answer to your question... The one's that hold 'good' domains could be considered as are Value investors (assuming they can still buy it at a reasonable price). I guess its not wrong to view them as Growth or Emerging/New Market investors either. When comparing domain investment with stocks or other assets, one notable issue is volume and liquidity IMO.

 

[lazylady]

If you hold good quality .com domains, you're pretty safe. Every investment has pro and cons. Cheers

Lazy

 

[Alex]

I do not agree with this. i entered the domain business two months ago, and investe my only $400. today, I made $500 in cash, and have a $1.500 valued porfolio. I sold two domains at 5.000% after three days of registering it.

Short term investing in domains is very speculative. My gut feeling is that to find a good offer from an enduser with domains, you need to factor a waiting period of over 5 years per domain. (Below 5 and your lucky)

Domain business is a very speculative one. It is one that still can make you a fortune. You just need to invest wisely. It is also more safe than the stock market.

But I agree with accentnepal, domain investment is a risky one, because a lot of external problems can occur. Technology is changing rapidly, and the whole domain business can change a lot.

- Alex

 

[groundctrl]

i can't say how happy i am that i started this topic. maybe, after six months, i'll post something about how this strategy is working out for me, give people some info. it's the reason i'm in the business-- not to generate income, but to make my income work for me.

 

[Lasher]

The problem is people look at numbers out of context. I sold two names last week, one for $1250 and one for $2500, both were regfee names and both were registered less than a year ago. Wow!! That's like 50,000% return in less than a year. On those two names it is, sure. Factor in the other hundreds of names I registered at regfee last year, not so hot. Add in the value of the time spend searching for domains and it's a losing proposition based on other work I could have been doing. In fact, I'd have done better over all as a walmart greeter with the time spent on domains.

That being said, if I cashed out on some of the "liquid" names (LLL.us, decent letter LLLL.com, names with revenue,etc) I'd probably come out ahead, but unless you are VERY good at picking the right names it is definitely not an easy path to riches.

This time next year I'll know if I was better in 2007 than 2006 at registering the right names. I've learned a lot, I believe so.

 

[groundctrl]

yeah, i'm looking at my bank account now, going "where the hell... ?" but you have to remember that those names are in their own kind of bank account. well, hopefully anyway.

 

[VURG]

I do not agree with this. i entered the domain business two months ago, and investe my only $400. today, I made $500 in cash, and have a $1.500 valued porfolio. I sold two domains at 5.000% after three days of registering it.

5000% ROI in 3 days is not the norm. Maybe I should have said lucky or very skillful.

We may have different a different understanding of the term domain investing. To me, domain investing is buying domains and holding onto them. The only trading is when the enduser finds the domain and approaches the owner which usually takes a lot longer than 3 days.

I see domain trading involving active marketing of individual domains or a portfolio of domains and I don't consider this to be domain investing but it can be done at the same time as domain investing.

We also might have a different understanding of the term "good offer". The owner of Vodka.com could have sold the domain for 1 million dollars but waited for the 3 million dollar offer. The 3 million dollar offer was only available at later date due to the timing of a marketing campaign for the new owner of the domain. For the domain investor, the 1 million dollar was not the "good offer".

For a trader, the 1 million dollars may have been a better offer as the cashflow for a trader at an earlier date may have opened more doors for the trader than the larger sum of money at a later date.

 

[dnk]

If you can develop some of the domains , the risk is reduced to some extent