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Why $200 oil and $5000 gold is good news if you are a Domain Investor

By February 5, 2011 February 28th, 2017 12 Comments

I just returned from an excellent DomainFest 2011 in Santa Monica. Hats off to the Oversee team who continue to set the standard for the Industry. During the conference I had an opportunity to meet with an institutional investor that is already working with Epik. This Hong Kong based investor has significant pedigree in institutional finance and has now assembled an investment fund with the specific mandate to invest in development-grade domain names.  In this post, I discuss the macro view of what I think is going on in the financial markets, along with the implications for domain investors.

The Chinese are Coming
In August 2010, I wrote a blog post entitled “The Chinese are Coming”.  Well, I was right. The investment group is Hong Kong based. Hong Kong is in the midst of a massive liquidity bubble and is now also the home of the world’s most expensive real estate — now about 2X of New York City.  Many of these investors are now hedging against these inflated assets, including through investment into an expanding array of “Alternative Assets”. The Chinese and Indians, while poorer than Americans on a GDP per capita basis, are in many ways better positioned than their debt-laden American counterparts. In fact, I would argue that Chinese and Indians understand alternative assets better than most Americans.

Asset Managers are getting Domains
What most surprised me about this meeting is that the investment case for domain names as asset class was something that he had already fully grasped. We could quite literally have taken turns with the narrative.  I was blown away.  At Epik, we often talk about the challenge of explaining domain names as an asset class.  When I meet with financial professionals, it usually takes about 10-15 minutes for the light bulb to go on when it comes to the investment case for domain names.  In this case, there was no real explanation needed. He got it and was already attacking the opportunity with a team of like-minded individuals who are backed by private investors who are on the hunt for alternative assets.  Hallelujah!

Gold and Silver Bullion –  You can’t take it with you … and if you lose it good luck finding it!
When investors talk about alternative assets, it is often commodities and, in particular, gold and silver bullion, that is high on the list.  While I see no downsides to owning some physical precious metals, I am not a big believer in owning vast quantities of physical precious metals. This is for two reasons: (1) unlike domain names which can be transferred instantly, it is hard to transport physical metals.  Airport security is getting tighter — including for private aviation — meaning that taking physical metals with you over a great distance will be easier said than done. Confiscation is a real and growing risk as one  traveler learned on a recent trip to Mexico where his 150 ounces of physical gold was confiscated.  In this particular example, the confiscation is a factual and provable event. Incidentally, the wife of the ex-President of Tunisia had a similar experience. So you see, gold is heavy and metal detectors are very good at finding it, making it hard for even wifes of tyrannical dictators to make tracks with it.  But what if your physical metal simply disappears? How do you even begin to prove that you ever had it, let alone track it down?  Right. Good luck with that. Domains on the other hand can without question be traced to prior ownership.  Domains can also be pledged, including via UCC filings, clearly establishing ownership and contingencies.  Bottom line:  with domains, unlike precious metals, if you lose them you can find them!

Telling the Story is everyone’s job
During the DomainFest, I also had an opportunity to sit down with blogger and domain investor, Morgan Linton, who was interviewing industry players for his upcoming video channel, DomainInvesting.TV. I thought this was an excellent example of what I think is everyone’s job, namely educating the public about the merits of domain names as an asset class. We have come a long way but it is truly amazing how many people still don’t get the enormous gap between the price at which one can buy a domain for future development and re-sale. However, to be clear, and as I will explain in the next section, this is not a get-rich-quick story.

Be Greedy when others are Fearful — Be Contrarian and Be Right!
Legendary investor, Warren Buffet, has been quoted that one should “Be greedy when others are fearful”. I believe that is entirely right.  There are various other interpretations of the same idea, such as “buy when there is blood in the streets”. This is simply the language of contrarian investors.  As Frank Schilling famously showed a decade ago, the single best way to make a fortune is to Be Contrarian and Be Right.  I believe this substantially sums up the opportunity for domain investors. Depending on how well you can explain your logic, you may find that your neighbors and relatives think you are a lunatic.  However, history has shown that there is a fine line between being a lunatic and being a genius.  If you are a Domain Investor, you are a contrarian.  I believe you are on the right side of history, particularly as the global economy moves from one which was offline-centric, to one that is online-centric.

The Party is just getting Started
I believe the mismatch in valuations for domain names is absolutely mind boggling. As a result, Epik has been acquiring between 20 and 50 domain almost every day.  See EpikDomains.com for a sampling of recent acquisitions. We acquire much of these on the drop but also routinely acquire them from domain investors who have yet to figure out that there is “life after parking”. PPC Parking is gasping for air. The good news about the collapse of parking as an economic model is that some truly amazing names can be acquired inexpensively. To this end, Epik maintains 25 registry connections entirely for this purpose.  You can find these gems too.  Check out Domains.Epik.com where we publish appraised lists of dropping names every day.

Some Recommended Weekend Viewing
The following video is a decent primer on the near-term outlook for commodities and the associated macroeconomic climate.  Nick Barisheff from Bullion Management Group is somewhat monotone in his presentation but content-wise, I believe he got it right:

Empire Club_ Outlook for Gold 2011

For those who prefer multimedia, here is the “Readers Digest” version of the same narrative:

The bottom line for domain investors is this:

– Precious metals and commodities generally are not really going up.  The Dollar — and effectively all fiat currencies — are losing value. The illusion is that this is a speculative bubble in commodities.  Speculative bubbles regress to the mean.  That is not what is going on here.  You are witnessing the debasement of the fiat currency regime. As more folks wake up to this reality, they will begin chasing more alternative assets — including domain names.

– If oil goes to $200, it would put further pressure on real estate prices.  Not only will there be less discretionary cashflow with which to invest, but the entire economic model of driving long distances, e.g. to work at one or more jobs, will break down. The economics of driving anywhere will change fundamentally, particular if this oil crisis lasts much longer than the last one, as I believe it will.  The shift to an online economy will be further accelerated.


Join the discussion 12 Comments

  • Stardom says:

    post of the year Mr.Monster, thus far
    thankyou

  • Louise says:

    Hi, That was interesting! What is “fiat?” I had to copy and paste it to make sure it was “fiat,” instead of “flat.”

    20-50 domains every day? You beat me! I was up to 50 domains / month. No more.

    What you wrote validates my project of watching future mobile domains: 3D, DTV, bendy or flexible display, and touch screen, under umbrella domain: MobileTechTV.com. There’s interest in where the future of cell phones is heading! Handheld3DTV is on its way! I registered that! Plus, handheld3DGaming, and with the announcement of Sprint’s “Industry First” pending Monday, with David Blaine as guest, I judged: 3DSPhone, 3DSPhones, DualScreen3D, and DualScreenPhones a worthwhile risk! We’re on the same wavelength, and I learned alot from Epik – thanx!

  • Gene says:

    Thanks for publishing this important – and timely – piece.

    It does seem like this is the year that domain names will really come into their own as a true, objectively-recognizable, asset class.

    Putting the fan-boy cheerleading aside, this is an optimal time for acquiring quality names.

    When I was a options floor trader back in the late ’80s, the guys who made the greatest scores were those who (a) believed in a particular commodity, (b) quickly positioned themselves, accordingly, and (c) reinvested their paper profits in an inverse-pyramid manner, i.e., if they originally owned 10 lots that increased in value, they subsequently bought another 20, then another 30, et cetera.

    That’s how the wealthiest trader I knew made all his money: He picked correctly, maintained his faith in its price direction, and didn’t sell till the end of the run. And I can’t help but see the parallels between the price action of that (agricultural) commodity then, and where the domain market stands today.

    So keep the faith.

    Gene

    ** RWM ** Right on Gene. Be Contrarian …. and Be Right!

  • Gazzip says:

    “- If oil goes to $200, it would put further pressure……”

    On everything, everyone, everywhere !

    With 11 middle east/African countries currently in major protests with their own governments over high food costs and unemployment the crap is gonna hit the global fan in a BIG way, its only a case of when, where next and for how long will it last!

    Most western governments are already teetering on the verge of economic collapse or sovereign default and social collapse will not be far behind that if it happens so this is not going to be a party by any stretch of the imagination.

    My advice for the next 6 months is buy as much food, fuel, water, batteries, supplies and all the other usefull daily essentials you can afford.

    Gold is of no use if it all grinds to a halt there will be no food/water/fuel left to buy within a couple days.

    What do the security experts say – society is “four meals from anarchy”
    timesonline.co.uk/tol/news/uk/article492642.ece

    Our governments and banks have been reckless and are still fast asleep at the wheel, Sad but true – watch this space, the dominoes are falling pretty fast.

    The bubbles will keep on popping

    Domains are insignificant in the grander scale of things IMHO.

    ** RWM ** I did not expect to ever see currency regimes and financial instruments to become weapons of mass destruction, but indeed it appears that this day is fully upon us.

  • Hi
    Maybe there another terms for “fiat” but the real Fiat is a brand name of a cars italian (or spanish?) producer very famous on the sixties with their smallest cars.

    In the meanwhile congratulations for the article.
    Regards

  • Rob,
    As always, Great Information!

  • sorry forgot to add my name on Twitter.

  • Logan Flatt says:

    Louise – “fiat” means “by decree”. It means that a government calls something money and forces it on the citizenry as a medium of exchange, store of value, and unit of account. In contrast, bona fide money is determined by the citizenry, or in other words, the free market. For centuries before British and American global dominance, bona fide money was gold and silver coins. Paper money started out as simple receipts for gold or silver coins stored on account. People figured out that since the receipts represented gold or silver in storage, they could just trade the receipts and then go collect the gold or silver on account when they were ready to do so. That’s what the U.S. dollar on a gold standard used to mean – you, or a foreign government or company, could exchange all your paper dollars for real gold or silver at the Federal Reserve. This was possible until the Great Depression when FDR made it illegal for U.S. citizens to own gold or silver bullion and Americans had to turn in what they owned to the U.S. Treasury (in exchange for paper U.S. dollars, of course). Foreign governments and companies could still exchange their U.S. dollars for gold and silver bullion at the U.S. Federal Reserve until August 15, 1971 when Nixon “closed the gold window” in their faces and halted the gold standard immediately. This left the world in unprecedented territory: absolutely no paper currency in the world as of that date was backed by gold or silver. What was it all backed by? Government promises to not overprint the paper, which would lead to devaluation of the paper and higher prices for goods and services because sellers of those goods and services would demand more units of paper in exchange for the same goods and services. So, ALL paper currency today is “fiat” — money only because a government says it is money. When a country’s citizenry or the rest of the world begins to disagree with the government on that issue, you see hyperinflation — dramatic increases in prices for goods and services in terms of the units of paper. Nobody wants the paper so you have to give up wheelbarrows of it if you want to buy anything of value from someone else. That’s what happened in Weimar Germany, Argentina (multiple times), Hungary, and many other countries, with the most recent example being Zimbabwe. The most immediate concern today is the Euro. How long will it remain money when the European Central Bank is just printing it to bail out debt-laden, bankrupt countries like Ireland, Portugal, Greece, and soon, Spain and Italy. Europeans are keen buyers of gold and silver just like the Chinese and Indians for this reason. The last straw will be the U.S. dollar but that probably has a long way to go. But, it could also happen at any time too. We could just wake up one morning and find that the Asian markets turned against the U.S. dollar and everyone else follows suit as the sun rises in the West (yet in the east, naturally!). This will all depend on how our U.S. federal government officials handle their spending and borrowing. Right now, we’ve got a $1.9 trillion deficit for 2011 (and growing for 2012 and 2013) and a $17 trillion debt balance to which the years of forthcoming deficits simply add to. If the rest of the world gets tired of seeing our elected officials simply print more paper dollars to close deficits and pay debts, they will stop seeing the dollar as money and switch to something else, ending the “fiat” hegemony the world has in place today.

    ** RWM ** Professor Flatt nailed it.

  • Ian Andrew says:

    Excellent! Great post with an outlook and perspective that gives a sense of what the next 5 – 10 years plus holds.
    Contrarian – absolutely. Buy low, sell high. When friends and relatives think you are a lunatic – you could be on to something or they could be right – only time will tell.
    Paying $50k for camera.com in 2002 – was I mad? maybe!
    Isn’t there a fine line anyway ;o)
    “Telling the Story is everyone’s job…”
    One way we found of telling the story (a little out of date now)…
    is at https://www.DescriptiveDomainNames.com.
    We find that sales to end users (not people in the domain business) are made so much easier by referring to them as Descriptive (as opposed to generic) domain names.
    Top down…. What we call them is up there…
    Changed our DNJ ad – to the new asset class version.
    Great post Rob. Keep up the good work. Ian.

  • Louise says:

    Wow! Thanx for nice explanation, @ Logan! I copied and saved it – like a lesson in history and current affairs!

    @ Ian, nice summary of “descriptive domains.” I am going to point future buyers inquiring of my domains there, so they get the proper appreciation of a find domain name! Camera.com for $50,000 – you go! You probably made up some of that in parking revenue in the years since . . .

    Countdown to Sprint announcement in two hours . . . Did I call it right?

  • Louise says:

    Yay! Called it right for once!

    DualScreenPhones dot com

    All the people who wrote off Epik I’m leaving in the dust. Kenny who? 🙂

  • Hello Rob,

    I could not help but notice this quote you posted a comment on another Blog ” One significant innovation that has helped break the log-jam has been introducing of development partnerships. In this case, the domain owner does not have to pay the setup fee. The development is funded ”

    I really like your model and am wondering if it might be a fit for our sites Business Address name of UseBiz.com? The prototype business plan that we have is quite extensive and I am wondering about the specifics of your quotation above? I know tht everyone in your position needs a successful poster boy example to show and we think we have one. What are your thoughts ?

    Gratefully, Jeff Schneider (Contact Group) (Metal Tiger)

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