Sorry: But For Most of You IT IS Going to be Like Playing the Lotto or At Least the Horses

Jul 05 2011

Most bloggers aren’t going to sit here and tell you how much money they waste on domains,  but the truth is most domain investors will never make a net profit. You’re going to have people tell you every day how much they sold domain X for.  Usually saying they paid a very low amount and selling it for much more.  What they won’t tell you is how many hundreds, maybe thousands of other domains they spent money on that collect dust and annual renewal fees.  Names they overpaid for and have no outlet for or interest in, their domain. It’s like the lottery and horse players that talk about the $1000 they won on Friday but never talk about the $5 they played everyday for a year and a half.  They celebrate the victories without acknowledging the losses.

There is a certain personality that is attracted to buying domains.  They are people that previously have bought and sold on ebay.  Dabbled in the stock market.  Poker players. Sports gamblers.  People that have that bug that drives them to make money through risk.  And domain investing has as much risk as any investment you’ll make.  The positive is with risk comes reward.  The negative is the house.  The registrars and their tlds.  You are going to lose $8 a year on every domain you buy and your dividend has essentially been negated to nil because of the reduction in parking income.  In reality, there are more people in stands watching the championship of your kids tee ball game than actually make a living buying and selling domains.  Most of us either make some “extra” income or no income or make it through other methods involving domains. Blogging, site creation, or providing products or services to other domain investors.

I won’t lie.  I make most of my domain flipping money on NNNN.coms and 5 letter domains. If it wasn’t for those niches, I would have lost money.  I like many, did much of my buying from 2008 to now and the returns on that period have been very poor.  In hindsight I would have been much much better putting every penny in the stock market.  My belief in CVCV.coms and 5 letters bailed me out of my hole but I would imagine that most domain investors bought domains in this period that now have a lower value than what they paid. Some may say that I am a hypocrite by putting out a daily list of names that I think are worth buying.  Advising people to spend more money on things they will never sell for a profit.  I would answer that by saying that of the names that are available to purchase on a given day, my list are the names that I think are best buy on that given day for resale or for developing.  It is merely an opinion but I do look through thousands and thousands of domains.  Of those , I put out 10-15.  It’s a very small percentage and out of all the domains I look at,  I might buy one a week.  That’s 52 a year.  Very small compared to many domain investors.

So how do I know that most people are lottery players?  I get the lists sent to me every day.  Names that are horrible.  Lists several pages long with every tld known to man.  Typos. Words people never use. Words in an order usually not spoken in the English language.  All sent by people that honestly believe they have a winner in there somewhere. Is there any other industry in the world that the majority of prices are set at “make offer”  The biggest domain investors in the world rarely have set prices on domains.  They wait for the offers to come in.  Yes, there are exceptions.  Yes there are very skilled investors but I am talking about the masses.  They are in a crapshoot.

So what can you do to actually make money?

1. Absolutely don’t listen to the people that tell you are going to make big money on the other tlds.  You think making money in dot coms is difficult?  Try taking that same keyword and adding a lesser used tld.  I explain it to my friends like this.  A dot com is like taking the player of the year after four successful years of college basketball.  Other tlds are like taking him in 8th grade.  It could become a great player but he could get hurt along the way or may not reach his potential.  You MAY make money just like you may make money in poker.  There are those that will but most are going to leave the table empty handed.

2. Patience is a virtue but cutting your losses is talent.   We all make bad purchases.  Most of us don’t have the portfolio to support a high percentage of bad buys.  The key is to try and cut your losses somehow.  It might be development, it may be sell at loss, it may be drop.  Despite what many may tell you, time won’t make up a bad buy.

3. Quit using the shotgun method.  You keep buying hoping that one of them will sell for a nice profit. And while that may happen, add up the cost off all the other domains you purchased and see if you still made a profit.

4. Your time is worth money.  If you spend 2 hours scanning the lists each day and sell two names a month for $1000 profit.  That’s $60 hours spent for $1000.  That’s $16.66 an hour not counting whatever you paid for the domain and the other money spent on domains you can’t sell.

5. Be realistic.  “One off” of a great domain doesn’t make it just a little less valuable.  It makes it almost worthless.

6. You are not Michael Berkens, Frank Schilling, or Rick Schwartz.  It’s too late to buy your way into a portfolio of that size for 99% of people.  Even they are selling more than they are buying.  Concentrate on buying ONE of their better domains.  One good name is MUCH better than 20 OK names.

7. Make enough money to become an unmotivated seller.  It’s why the married guys seem to attract all the ladies.  They don’t come across as eager.  They are comfortable and confident.  Once you don’t need money seems to be when you make the most.  You can maximize sale prices and pass on lower offers.  You don’t have to play the lottery and don’t blow you’re money trying to find that lottery ticket.  You can buy higher quality names.

So even if domain investing SHOULDN’T be like playing the lottery, to many it is.  Dreaming of a $30,000 offer on a name they just paid $150 for last year.  The stuff domain blogs write headlines about.  Then again “Man pays $3000 for name worth $150” isn’t exactly the story we all want to read.

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Outsmarting the Dumb, Outworking the Smart

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20 comments

  1. em

    Hi,

    It’s only a lottery when there is no planning involved before purchase. If you have a solid plan what your gonna do with any given domain, success or failure, it is not a lottery ticket. However, most people do not plan sufficiently. They buy dttebvfiugflogktro.ws with the eyes closed, cross the fingers and hope for the best (ie angels to drop from the sky). We know this doesn’t work. It takes a very long time, patience and effort to plan and have foresight what to do with domains. People tell themselves that they will buy 200 mediocre to aweful domains and that they will develop them at some point. 190 will never get developed. Somewhere in the subconscious was still the lottery mentality. Person could have bought one for $20000 instead, put up a nice site, got some traffic and voila…a nice sale.

    Unless someone has buckets of money to buy their way into the domain industry, there is no other way then the above mentioned way. Either one must buy commodity domains (ie .com), have the best keywords in a new extension or successfully develop (or a combination thereof).

    If there is another way, I’d love to know it.

  2. Poor Uncle

    I was agreeing with you when I first read your post…but after giving some thought I think I disagreed. Granted that people with certain personality can lose their house and their wife if even they were investing in penny stock..that literally only cost a penny a share. 🙂

    Having said that, I think it is difficult for a small timer to lose their shirt buying domain names…because it takes time to select the domain name you wish to buy, every 12 months or so…you are given the chance to drop…and lastly most names only cause less than $10 to registered.

  3. Adi

    You can lose everything in life doing anything…stocks, domains, collecting post stamps etc. 😉 It’s not about what it is but how smart you are and if you have a plan in life.

  4. cato p

    Thank you for sharing your experience with us. Me myself lost a lot of money like you on stock market before entering the domain business..

  5. Michael

    This is so true… I wonder how many domainers have actually done the “big calculation” of all their income versus all expenses buying and selling domains. I suspect it is not a pretty picture.

  6. 1-800AUCTION.COM

    Shane,

    I see it differently.

    If domaining is what’s promoted to be, it should be like a damn lottery.

    Most of the names you consider trash should fetch something, between $300 to $10,000.

    It doesn’t do that because, domaining is pure bull.

    Most people can ome up with the name they want to use for their business. 90% of names do not get more than 100 type-ins a month. So, nothing justifies domaining really. But, a short sounding name is worth something; so is a bad sounding name that is brandable. Think about Google, what an aweful name, but it works. Think about Yahoo, that is NOT your average Category Killer, is it? Of course not.

    So, let’s be honest, domaining is full of it, not the names.

    I know folks like Berkens, and Schwartz, will appear to me magicians because they are successful in this stuff, but look, it shouldn’t be magic to make money in domaining. It should be reproducible. If a select few are doing right, then it sucks!

  7. Snoopy

    “I won’t lie. I make most of my domain flipping money on NNNN.coms and 5 letter domains. If it wasn’t for those niches, I would have lost money. I like many, did much of my buying from 2008 to now and the returns on that period have been very poor. In hindsight I would have been much much better putting every penny in the stock market.”

    ////////////////

    Takes balls to admit. Excellent blog post.

  8. Jason

    I agree with your article. Furthermore, buying domains in a niche that compliments your strengths is a good strategy. Waiting to sell good domains is better than selling them cheap in a package deal.

    You are right about making more money when you’re financially stable. However, I dont buy domains based on luck. Im confident with my purchases. There are five good niches I believe in.

    Great article

  9. Snoopy

    “However, I dont buy domains based on luck. Im confident with my purchases. There are five good niches I believe in.”

    //////////////////

    As long as they are making money today it is all fine, but having said that I’m yet to hear of many speculators who are unconfident in their purchases. Perhaps that is part of the problem, over confidence.

  10. Joe

    #7 is really what all the post can be summed up to. That’s why it’s important, I’d say fundamental, to have a day job and not to rely on domaining to feed your little kids.

  11. DR.VEGAS

    Great article.I’m not “winning” at this game just now. Fortunately I don’t have a family to feed.I have a buy & hold strategy on a few niches that look promising.
    I’d better be right. 🙂

  12. em

    “I would imagine that the guys that buy hundreds of names a week would have much more exciting domains to talk about but for me, each purchase is a little step towards building a million dollar portfolio. My entire portfolio has been built from $100 investment in 1995. I only purchased a few names from 95 to 99 and even in 1999 I am proud to say (sarcasm) that I still bought terrible names. Even so, I have been fortunate to have sold some websites and domains that have paid for everything I do. I have not invested one cent of outside money into what I have. It’s all been built on a buy, then sell, then reinvest strategy. Hopefully that lowered the bar on judgment of my new purchases. Here they are”

    It appears the scope of your portfolio is a bit larger. I suppose NNNN.com and 5L.co is what you do monthly or short-term.

    “Puddles.com I wanted the name as soon as I saw it. It reminds me of youth, kids, and fun. It’s a word we all use and it seems to invoke a smile in everyone that hears the name. My wife and daughter love it and if they show any interest at all it must be a good domain.”

    Only reason I found this post was because of the newsletter I get. Puddles.com is a nice name. Hope you get top dollar for it.

  13. Samit Madan

    All investment is a ‘crap shoot’ or ‘lottery’ if you don’t have market intelligence, that includes stocks or insurance or even real estate.

    You’ll find people making and losing money in every business.

    The fact is there is no ‘secret formula’ all it takes is intelligence, vision, a little bit of money and a lot of balls to put your money into your vision and stay the course.

  14. LS Morgan

    Ken Jennings once said that most all contestants who make it on to Jeopardy know most- if not all- of the answers. It just boils down to ‘intellectual reaction’ time and how fast they can get to the buzzer.

    David Dreman wrote one of my favorite investing books, called “Contrarian Investment Strategies” where he raised the issue of a scantly discussed intelligence type known as ‘configural reasoning’. It’s basically a persons ability to configure fragments of information into a cohesive mosaic that ‘makes sense’ and from that, make cogent inferences. The ability to do this is built into everyone- if you see a gang fight up ahead, you know to turn around and walk the other way- but some people are better at it than others. Some people know to cross the street before the fight breaks out. Some people know to avoid that neighborhood all together.

    It’s been said that this is the ‘genius type’ that defines Warren Buffet. I’m pretty sure it’s also the baseline Y factor in a successful domain speculator, too.

    There are a lot of things that can be inferred from a keyword. There are also a lot of signals- credible and bullshit- that one has to consider when making a decision to buy a domain name. To some people, it’s a simple affair. The Google adsense keyword tool is their god, or perhaps Estibot.

    There is no way to fully quantify when a deep-pocketed end user will come calling for a domain. This is the element of chance that exists in domain speculating. There is, however, a fully defined strategy as far as what types of names exhibit the most favorable expectation of striking in the most favorable ‘probability range’. Just like poker, it’s all about managing probability, over a sample of time. Yes, you can occasionally win with 7/2 offsuit and there are even circumstances when it’s appropriate to play it, but over time, even though they occasionally get beat, pocket aces is still the best starting hand.

    In domaining, there’s no way to account for the flop (the end-user), but you have the advantage of eliminating front side chance by determining what your hand you choose to play (in premium .com’s, you’re playing pocket aces) They don’t win always- sometimes, inferior hands come out ahead and leave us shaking our heads- but the premium hands have the highest expectation to win over time and like everything else, compounding favorable decisions over time is what puts money in the bank, even if the variance along the way can be annoying.

  15. Jason Thompson

    I didn’t read past the title, because the title sums it up perfectly. For me domaining is a side income and I could care less about making a fortune from it. I enjoy building sites and monetizing my names. If I didn’t enjoy it I wouldn’t be here. 🙂

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