Most new domainers seem to underestimate the importance of liquidity and the irony of it all is that it’s exactly them who should be paying attention to this aspect.
Let me try to explain.
Let’s assume Bill managed to set aside $x and that the amount in question is everything he has.
Let’s also assume Bill is very excited about domains and invests the entire amount ($x) in a small portfolio.
Now if he doesn’t end up needing quick liquidity, it’s all fine and dandy. But what if he has to deal with an unexpected expense all of a sudden? Realistically speaking and as Murphy’s Law tells us, expecting everything to go smoothly isn’t a great idea because… well simply because things rarely unfold that way.
That’s precisely why you also have to factor in the liquidity dimension and ask yourself: what if I end up dealing with unexpected expenses?
If you don’t plan accordingly, such expenses can catch you by surprise and you’ll end up having to sell one or some of the domains you invested in. Unfortunately, when you’re forced to liquidate quickly, the likelihood of at least breaking even is considerably lower and therefore, especially if you’re a beginner, you will most likely end up losing money.
Therefore, factoring in possible liquidity issues makes sense.
1) keep at least a little bit of money in the bank for possible emergencies
2) invest at least some of your capital in highly liquid domains such as short ones
… the list could go on and on.
The message I’m trying to get across is this: it’s great that you’re excited about domains, it’s perfectly understandable (especially if we’re talking about a beginner) but it doesn’t mean you should get carried away.
Never make the mistake of not factoring in potential liquidity issues!
This post is about domaining but it can be applied to pretty much anything else: investing in other assets, starting a new business etc.
Expect the best, be prepared for the worst