As I wrote earlier, I was on a panel with Adam Strong, Frank Schilling, and Mike “Zappy” Zapolin discussing the future of domains. One of the questions Adam asked Frank is if he would sell any of his domains for 5x-10x? Frank answered “No”. I had to jump in and said “Yes” and explained it really depends on circumstances.
Others have brought the issue on domainstate and I’m sure other areas on the web. Why then I would sell? It has to do with managing investment risks, reversing investment decisions, leveraging investment vehicles. In short, having a liquid market is essential for the serious investor.
This is the risk that you won’t be able to get your money quickly when you need it without taking a significant investment hit. If you own a small business, selling it for anything close to what you think it’s worth is usually difficult and time consuming. If your wealth is tied up in raw land and you need to turn it into cash, you may have to wait months or years to get the price you think you deserve. If you invest in limited partnerships and need to sell before they expire, you may have to sell at a substantial loss.
You protect against this risk two ways: First, by making sure that most of your investments are in liquid assets that can be sold quickly and inexpensively; stocks, bonds and mutual funds all qualify (Sahar’s note: Domains do not!). Second, by having an emergency fund that will let you quickly get your hands on money when you need it, without having to sell an investment you had planned to keep.
THERE is still investor fancy for technology stocks, ranging from Mascon Global to Infosys Technologies.
But analysts have been discouraging retail investors from buying certain stocks, not because they do not hold growth potential but because these stocks are not liquid.
Why is liquidity an important factor to be considered for investments? Because liquidity helps reverse your investment decisions.
Suppose you buy 10 shares of Infosys at the current price, hoping the stock will climb in the next fortnight. What if the stock falls instead? You can easily sell the shares and reverse your investment decision if your bet turns wrong.
But instead of Infosys Technologies, what if you had bought Mascon Global? You would have found it extremely difficult to sell the shares; for the stock’s liquidity is low. Why is this so?
Back to multiples, in mature markets liquidity is vital. Having an agreed market multiples, even if seems to be low (in the domain channel today it is approx 8.5x, set by Marchex/Name Development deal), is better then having none. The domain channel cannot mature to its full market potential without liquidity options for the serious investor and institution. It is the main reason I believe we still do not see major investors backing up the domain channel. Things change, circumstances happen, and without the ability to liquid your assets quickly, risk rises, major investors won’t get involved, which of course is then directly related to the value of your domains.
To sum it up, liquidity means options and options means control, control in trading and control against the unexpected. More control the more comfortable investors are, the stronger your assets are, and the better you sleep at night. Being a fan of multiples does not mean I have to sell anything today (we haven’t sold anything for years). All it means is I rather have options if I ever need to sell quickly then not having them.
Thank you for sharing your insights Sahar. You are a smart man and it obviously wasn’t ‘luck’ that got you where you are today.
We are all witnessing what happens when a market suffers from a lack of liquidity and it’d be hard to deny just how important it is.
I think this is something that many of us early domainers have not fully realized. I know I have sometimes been blinded by long-term potential or by the valuations of domains that are sold on a fairly infrequent basis.
Thanks again for helping us figure out the secrets of making it in the domain industry Sahar. It is greatly appreciated!
Colin
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Thanks Colin for the kind words. Are you gonna make it to TRAFFIC FL?
Cheers
Sahar
Great post Sahar. Good, to-the-point advice explained in simple terms…
More post like this one please!
I agree with you that lack of funding in the right moment can not only make you sell for a price lower than you wanted to, but also ruin your overall strategy, leaving you without extra funds when that once-in-a-lifetime opportunity arises.
I just submitted last week for the first time my collection of .com names to auction a week ago (about 100 interesting domains) and I had to force myself to do it…precisely following the strategy you mention regarding liquidity…
Regards
Javier Marti
Trendirama.com
PS/ is there anyone you would recommend me sending those domains to before they become public in the auction? I am still on time to stop the process or retire any name I sell privately.
Sahar,
Thanks for being so “totally informative.”
As I see it (totally noob), there are two value propositions supporting domains: name-value and address-value.
The earned-value from PPC generation using somebody’s monetizing tactics, earning that 8.5X, and then there’s the speculative value created by matching the address to the buyer.
For example, redirected traffic from lipstick.com may be producing substantial revenue to earn it’s 8.5 multiple. But, Revlon would like to capture all that generic traffic, because it converts better to direct sales, precludes Max Factor et al from getting that traffic, and therefore the speculative value could be many times higher than its inherent/earned value.
I’m trying understand how past performance can be altered advantageously. Help me out here.
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There are many ways to look for potential in domains however this post wasn’t about value as it was about liquidity. Whether multiples, sales, leasing, for me it’s all the same. When and if I need to sell I want to have options. The more options and the more “industry standards”, whatever those standards are, the better.
Excellent post, Sahar. I was just explaining liquidity to someone the other day who was raving about a price increase in a penny stock. Pointed out to him that even though the stock went up, given the lack of liquidity, if he wanted to sell it, he wouldn’t get what his stock price times number of shares was.
This post of yours applies to investing in general, regardless of the product (stocks, real-estate, domains)
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Absolutely, it is investing 101.