When I review my investment portfolio, I am content when I see 10%+ returns on my investment. I am ecstatic when returns are higher than that, although I know that paper gains don’t mean that much. YTD returns for the S&P 500 are around 7%. The 10 year average is just under 8%. I don’t know about you, but I expect far greater returns on my domain investments. Perhaps I have a distorted view of expected profit?
When I buy a domain name, I am buying it because I think that it is worth more. How much more really depends on the domain name and price I paid, but if I only thought I could sell a domain name for a 10% profit, I wouldn’t buy it.
The domain name resale market is far more illiquid than other markets (stocks, commodities, real estate, currencies, and other investment markets). If I buy a domain name today for $5,000, I might not be able to sell it tomorrow for close to $5,000. I might not even be able to sell it for $500, depending on the domain name. In the case of an equity, piece of real estate, currency, or other traditional investment, my downside would be much more limited. Because of this, domain name investors need to be certain there is room for their return, and a small profit wouldn’t be enough to risk capital.
Despite the higher returns that are expected / desired, I don’t think domain investments is something that can easily be scaled (if at all). What I mean is that if you find a fund that is bringing solid returns, you can generally invest as much money as you can afford, and the returns will likely remain the same, growing your income quite a bit. With domain investments, it’s not like I can just throw more money at them and expect higher returns with the same risk. The market for great acquisitions is limited.
Over the years, my view on profit (and expected return) has become a bit distorted.
On a sidenote, check out Morgan Linton’s timely blog post. I saw it before I published this article, and I think it’s tangentially related to this topic and worth a read.