Your 2009 Domain Investment Guide

By Jay Finnan, Portfolio Sales Manager

For all the woe that comes with an economic downturn comes great opportunity. If history is any teacher, many of the great fortunes five years from now will have sprung from investments made at the present time. If anything, now is a great time to be liquid, so as to take advantage of these very opportunities.

It’s hard to think long-term in times like these, but there are great opportunities now that won’t be there by the time the larger economy turns around. They might not be around six months from now. To take advantage of all of these great opportunities, start preparing for the year ahead. I would suggest putting three things on the top of your year-end to-do list:

1. Buff your flexibility by increasing your cash position.
2. Put some of that money to work. Now is the time to buy.
2. When buying, focus on Quality.

Raise your cash position.

If your cash position is already large then you’re ready to move on to step two. If not then consider raising some capital this month in order to take advantage of some of the bargains in the marketplace. Rebalance your portfolio and give yourself some flexibility. Look at your portfolio the same way you look at your business (whatever that may be). Consider liquidating names that aren’t producing any significant cash flow. Reprice your names accordingly. Use low fixed prices to attract bidders. If you see some names in your portfolio that you consider overvalued, consider selling them now. Typos, numeric .coms, and domains with no traffic are examples that might fall into this category. If you have some names that you consider pretty good but would be happy to move them quickly in order to put the money to better use, consider submitting your names for a premium auction with a low or no reserve.

It’s hard to ever take a loss, but it’s better to realize it and move on sooner than later. In the long run your domain portfolio should be much better for it. Once you’ve raised some capital you should definitely keep some in a cash account. Most fund managers keep five to ten percent of a fund’s value in cash. The rest you can put to work immediately by picking up bargains in the marketplace.

Buy, buy, buy!

When prices are high it’s tempting to hold out for even higher prices. No one likes leaving money on the table. When prices are low, doubts about the whole market creep into the imagination. It’s tempting to be conservative and hold on to what cash you have. That’s human nature, but it flies in the face of the oldest adage in business: buy low, sell high. Successful business people know how to contain their hubris in the good times and their fear in the downturns.

In recent months many names have had their price lowered and some that were never available now are. Both I and conventional wisdom suggest that now would be the time to buy. Look closely through  Sedo auctions.

Make it a habit. It’s a big marketplace with hundreds of thousands of buyers and sellers from all over the world. Bargains make it into the auction routinely. If you’re willing to put in the time to find them you’ll discover some great buys.

Do your homework on emerging markets for domains, such as Spanish and Portuguese Language .coms & .nets, Brazilian cctlds, and other country code domains. Some cctlds have seen phenomenal growth, even in the current environment.

It takes know-how to spot the good from the bad. Bone up on your languages and on international business. In a few months you might pick up some nice investments and make yourself a bit of a renaissance business person while doing it.

Focus on Quality!

It’s time to buy, but this is no time for impulse buying. Think long-term with your investments. Assume you won’t be able to flip them right away or even in a year. Hopefully you will be able to, at a generous profit, but don’t assume it.

Look for names that will retain their value over time, and with regards to traffic I have to stress: Quality over Quantity. Also, go with what you know. You don’t want to invest blindly. If you’re familiar with the travel industry, look for travel names to invest in. If you’re familiar with real estate, invest there. If you studied biology, focus on that niche. Names like, & are the type of names I’m talking about. They’ll retain their value over time and should produce positive cash flow even in a turbulent market.

Additionally, the traffic quality for names like these is likely to be high. Think about the root advertiser. What kind of traffic is likely to turn into a sale for them? Highly descriptive, generic domains produce the quality type-in traffic that advertisers are willing to pay a premium for. What’s good for them is good for you as a domain investor. In terms of domain traffic monetization, we’ve entered an era where quality of traffic is being rewarded above all else, and one high quality click will earn you much more than dozens of low quality ones.

In Sum

Follow this advice and you should be in good shape a year from now. Treat your portfolio like any other business. Make it lean and mean, think long-\\term and focus on what you know. As the market evolves your portfolio and its traffic should appreciate in value.