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11|12|2008 09:08 am EDT

Building a ‘Solid’ Portfolio

by M. Fiol in Categories: Featured

Like Traditional Investors, Owners Should Focus on Diversification

You hear it almost daily through the money wire – diversify, diversify, diversify. And while most domainers usually scoff at market returns, it is important to heed this fundamental in the growth of ones own portfolio.

Diversification in domain names is important because of the swings and tides of monetization and traffic and even public perception. We strive to rise and fall with the waves, we look ahead without dwelling or, at times, focusing on the issue at hand.

And thus, the idea of creating ‘variety’ in holdings should come naturally – we enjoy jumping from one great name to the next. This strategy is tailored to the domainer.

The tricky part, of course, is in defining ‘diversification.’ Fortunately for domain holders, the word has mountains of meaning as it can apply to industry, extension, country, domain class, etc. To ‘diversify’ in the domain market is easy to define, difficult to achieve.

Why? Because the ultimate portfolio is a mix that produces both short and long term value with short term being ‘revenue’ and long term being ‘end-user resale’. We never recommend buying a domain that has no resale or end-user value – this is the basis of domain speculation.

Problem lies in the difficultly and expense, even time consumption, needed to locate names offering consistent revenue streams. These are the domains that sell below the surface for large multiples; these are the names that have disappeared into tight domainer pockets – coaxed out via necessity or offers of large sums of cash.

On the flip side, building long term value is easier and less expensive…in some cases. One can speculate and find very good single-word generics in the current environment or take existing names and develop them into sites – the pre-ultimate value recognition behind end-user sale.

Through development one can add SEO value to the valuation equation, not to mention increases in traffic and additions like members or content plus revenue or sales. The catch here is that a ‘mini-site’ truly won’t maximize the potential. It has to be unique and distinct, hopefully viral, offering something of real value to the visitor – nothing sells better than the right idea combined with the right name. That is, if you really want to hit a home run. Take a look at phone.com, software.com and soundboard.com for examples of high-quality sites built by domainers.

In its simplest summary, a solid portfolio should be a mix of names from multiple industries, in multiple extensions (but with a focus on .com or your ccTLD) and based in consistent revenue streams. All names should have end-user resale in some form, and if not, should be developed to create it.

In more distinct detail, a great portfolio has revenue and resale but also includes a few developed properties as the ultimate hedge against seasonal and financial shifts in the muddy PPC waters.

Easier said than done but as great investors know, economic recessions drag everyone down including industries and companies that actually may benefit like the Internet, consumer staples and ‘sin’ products like tobacco and alcohol.

It should thus also be noted that one of the best portfolios I’ve seen had less than twenty names, belittling the common notion that “more is more” in this business – witness the current liquidations for validation. In other words, a great portfolio does not have to be large in numbers and thus, registration fees.

So let the markets scramble and struggle to regain their footing, we’ll take the ‘good’ (diversification, equity, branding) from their trials and avoid the ‘bad’ (deregulation, mismanagement, excessive debt) like the proverbial plague everyone refers to. The Internet is here to stay – something domainers figured out and took advantage of long ago.

Something I suspect they’ll take advantage of again. What a diverse bunch indeed!


M. Fiol is a long-time domainer, writer, speaker and regular DNN.com contributor. He is also a DomainConsultant.com analyst and CEO of HappyBirthday.com among others.

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11 Comments

RegFeeNames.com

November 12, 2008 @ 9:46 am EDT

A very interesting post!

Im one of the guys that hasnt really built my portfolio for revenue which may seem strange too sum but holding out for the keyword terms to sell to endusers in later which I believe shall pay for my early retirement from my day job and allow me to focus on domaining full time with cash in the bank.

The majority of my portfolio have all been ReeFeeNames that I have picked up and shall hold until I find the correct enduser.

I think more domainers need to look at the long term investments and not buying a domain based ROI from PPC etc as this model just doesnt work anymore in my eyes.

Great Read, keep up the excellent posts!

Regards,

Robbie
Founder
RegFeeNames.com

[…] fall with the waves, we look ahead without dwelling or, at times, focusing on the issue at hand. (more…) (c) 2008 […]

Chris

November 12, 2008 @ 3:04 pm EDT

At first this seems to make sense, but perhaps on in terms of parking revenue. Which is worth more, all other things being equal, a profolio that is diverse with a number of topics, or a portfolio that has a theme, like finance, telecom, consumer products, or pets? If you want a big player to be interested and pay well, I think making it easy for them to intergrate what you have into their portfolio makes more sense.

Buying a premium name is great, but I think buying a large number of longtail keyword domains may provide greater value.

So I would advise a client to at least work towards building groups of domains on a topic with the idea of selling the groups off as needed, or just making it easy for a buyer so they don’t have to do so much research on your names.

Mike

November 12, 2008 @ 5:12 pm EDT

Good point Chris but your point also reaches the core of the argument which is that diversification protects against the falling of any one industry. For example, if you own nothing but banking domains, times are tough.

Another issue is that diversification is easier and cheaper than focusing on a niche, unless one started eating it up long ago. Highly cost and time-prohibitive to attempt to devour any viable niche these days.

Also note that this article is more about ‘security’ than ‘investment’ and more about ‘opportunity’ than ‘counsel.’ Though focusing on niches is very worthwhile if you have an idea and site with a track record of success.

Mike

November 12, 2008 @ 5:34 pm EDT

Most professional domain investors or should I say serious domainers that have been involved in the industry for a while now are already well diversified in dozens of niches. Those who aren’t are short sighted and are all too caught up in the hype. It takes years to grow ones profits from what is mentioned above. The late comers have invested in crap, and for example why is your KeywordKeyword.com domain or so called “generic” worth $500 or $5000 to an end-user if I can get the KeywordKeyword.net for $7 — I really don’t care about having the .com because the .net or .org will do just fine for my development project… just one scenario.

Good write up.
Best,

Mike
http://www.wannadevelop.com

Helder

November 13, 2008 @ 8:21 am EDT

I totally agree with you Mike, that’s what i’ve been telling domainers, they say i’m a newbie, and don’t know much, that is true, but one thing i know, i come from the side of end users, and i know that for end users the keywords are what count, that’s what they want, words that match their business/brand, if they can’t have a dot com, they won’t use other words, they’ll get another extension, because it makes no difference on search engines, google and others don’t care about extensions, only keywords.

Another thing i’ve been saying in some blogs is that the so famous LLLL.com don’t worth much to end users, because most LLLL are non sense letters, and end users usually want words, only some LLLL make sense.

There are different markets and rules, it all depends if you’re selling among domainers or to end users, that’s what i believe, when i’ve started i was reading famous domainers say that extensions like info or mobi or tv would never worth anything, and now we see a lot of them being sold for high prices. Another example domainers always say that hyphens don’t worth much, well most end users i talk to, have the idea that hyphens are better because they make the domain more readable, and i’ll give two examples: mercedes-benz.tv , mercedes also bought mercedesbenz, but only to redirect. In my country Portugal, Mitsubishi did about the same mitsubishi-motors.pt, and there are more examples.

One thing is true, the rules domainers have created among each others, don’t mean much for end users.

jedi

November 13, 2008 @ 4:45 pm EDT

Very interested post, this is true we have to make our portfolio short and various in industry wise.
We have very nice portfolio if you have time take a look at http://www.adomaindeal.com/portfolio

Jacob N.

November 14, 2008 @ 2:21 am EDT

Another great article by the people at DNN. I am a avid domainer not in the sense that I buy and flip in quantity, but just like
M.Fiol suggested, diversification. I’m very picky about the domains I pick up, only investing if I can see myself building a site that will appeal to my demographic. I also work in the domain industry and have been blessed to have the opportunity to speak with domainers on a daily basis. This gives me great insight on the industry and current trends.

I have about 200 domains in my portfolio, some geo-related, some meant to be built out and flipped, and a couple long-term websites that can rake in good revenue through REAL content and relevant ads. I see domainers get caught up in the buying and selling making little one time profits. Although I’m sure it’s quick cash and may pay the bills today, it leads me to ask what about tomorrow? Diversify your portfolio and think short and long term. If flipping is natural to you try building out a site, monetizing it correctly, and then flipping it so you can at least demand a reasonable ROI. Great advice from DNN and excellent info in the threads. This is why I love the domain community, everyone has something to add or share.

I wish you all the best,

Jacob N.
http://www.edendomains.com

marcia lynn

November 16, 2008 @ 8:33 am EDT

You hit the nail on the head again, Mike.

“Never put your eggs in one basket” — not in your portfolio, not in one registrar, not in one hosting account, not in one type of revenue stream,
not in only one sponsor, etc.

That way, no matter what happens, nothing is catastrophic; the worst-case
scenario then only brings on mild discomfort for a bit.

;)

[…] Building a ‘Solid’ Portfolio | Domain Name News – Like Traditional Investors, Owners Should Focus on Diversification You hear it almost daily through the money wire – diversify, diversify, diversify. And. […]

portfolio

November 22, 2008 @ 2:32 am EDT

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