Categorized | Domaining Tips

Reseller Market Recovery vs. Stock Market Recovery?

Posted on 25 November 2013 by Andrei

End user sales are doing ok but the reseller (domainer to domainer) market hasn’t picked up as spectacularly as the stock market, for example. In my opinion, that might actually be a good thing and I will try to explain why.

First of all, it’s important to understand one fundamental difference between the reseller market and the stock market or the bond market, for that matter: the reseller market is still in its infancy, there are no institutional investors at this point.

Therefore, the effects of QE haven’t been felt as much as they have with the stock market or the bond market.

When it comes to stocks, the market saw new highs and when it comes to the bond market, we’re dealing with the exact same thing.

Reseller market prices, however, aren’t at pre-crisis levels yet unfortunately… or fortunately?

In my opinion, the fact that reseller market prices haven’t picked up as spectacularly might be a good thing because it’s an indicator that (corroborated with other indicators that I will refer to in future posts) could tell us us one important thing: that we might be dealing with a sustainable recovery and the same thing can’t be said about stocks or bonds.

In my opinion, a lot stocks are overpriced at this point. Do I think prices will go higher? Well… yes. Please keep in mind that I am not giving you financial advice, I am just sharing an opinion and my opinion is that yes, prices will probably continue to go higher for a while.

Bonds are even more overpriced, the yields are ridiculously low at this point in my opinion.

In contrast to stocks and bonds, I think domains are undervalued right now and furthermore, I think it’s a good thing that our recovery is slower as opposed to euphoric.

QE generated a lot of liquidity and much of it isn’t exactly spent wisely, to put it mildly. Therefore, I don’t think we should be worried that the effects of QE aren’t being felt as much as with stocks/bonds.

Let me put it this way.

In my opinion, those who invest in carefully chosen domains right now will do better than those who invest in stocks and bonds at this point. I, for one, see considerably more upside when it comes to domains.

Therefore, the message I’m trying to get across is this: the fact that the reseller market hasn’t recovered as euphorically as the stock market isn’t necessarily a bad thing. In fact, it may very well be the exact opposite.

I know what I’m saying might sound weird but if you think about it from a QE perspective and understand the implications, maybe you’ll come to the conclusion that I’m not as crazy as you initially thought 🙂

10 Comments For This Post

  1. Snoopy Says:

    It comes down to income. Revenue from domain parking has continued to spiral down, whilst dividends from stocks have recovered and are close to peak 2007 levels. It is no more complicated that that. An asset with growing income versus an asset with declining income.

    The wholesale value of domains are set by domainers and they have no confidence when it comes to actually putting money on the table. Instead they are gradually selling off what they have and not reinvesting much.

    There is used to be lots of “institutional” investors in domains, the money quickly dried up when revenue hit the skids.

  2. Kassey Says:

    Actually, I agree with you. QE encourages speculation in assets. The bull market of stocks has started and it’ll be a while before a bubble develops. Bonds are too expensive now.

  3. Andrei Says:

    @Snoopy: in my opinion, domains shouldn’t be considered income producing assets due to the highly unpredictable nature of type-in traffic.

    Don’t get me wrong, it can be a nice bonus but capital appreciation as opposed to revenue generation is where it’s at when it comes to domains in my opinion.

    A good investment doesn’t necessarily have to generate revenue.

    We have gold as an example.

    Despite the fact that gold just sits there and doesn’t generate any revenue, those who invested in gold back in let’s say 2000 did a lot better than those who invested in an S&P 500 index fund in 2000.

    I know stocks did better if we choose other entry dates, don’t get me wrong.

    It’s just an example which proves that the things you invest in don’t necessarily have to generate revenue, each investment type has its own pros and cons.

  4. Andrei Says:

    For what it’s worth, I’m not a gold enthusiast by any means and in fact, I actually warned people rather accurately back in December 2011:

    “in my opinion, gold will not be a lifesaver for people who invest at this point”

    Here’s the link in question:

    http://domainingtips.com/gold-bubble.html

    I don’t give financial advice on DomainingTips.com, I’m simply sharing my opinions and while I’ve been bearish on gold over the past 2 years, I want to make it clear that investments which don’t generate revenue shouldn’t be ignored either because again, all investment types have their pros and cons.

  5. Kassey Says:

    Warren Buffett recently bought 40m shares of ExxonMobil which has a PE ratio is 12 (compared with the market’s 16), so stocks are still attractive.

  6. gpm group Says:

    There is a lot of uncertainty with new gTLDs and the effects they may cause, this has had a dampening effect on domains for the last few years. People tend to not to invest as much in a market if there is uncertainty or there are too many buying choices/options, as it’s more difficult to be confident the choices they are making will be the ones that are successful.

  7. Andrei Says:

    @Kassey: I agree that not all stocks are overpriced, that’s why I made the distinction in my post and explained that *a lot* of stocks (not all of them, as you correctly pointed out) are overpriced as opposed to bonds where pretty much all of them are ridiculously overvalued in my opinion.

  8. Kassey Says:

    I’m with you, Andrei. I love uncertainty. The late John Templeton said “Bull markets are born on pessimism. They rise on skepticism, mature on optimism, and die on euphoria.” When people no longer doubt but have full confidence in the market, the best time has probably gone.

  9. Snoopy Says:

    Posting random quotes about contrarian investing doesn’t change the fact that the domain market has done poorly over the last 5-6 years, and the domain revenue continues to fall.

  10. Andrei Says:

    @Snoopy: you can be a contrarian when it comes to stocks, bonds or pretty much any investment type, not just when it comes to assets which don’t produce income such as gold (again, I am not advocating gold here, just giving you an example).

    Are parking revenues falling? Yes.

    Has the reseller market done poorly? Compared to the stock market yes but the stock market recovery is fueled by QE, as I’m sure you’ll agree. Therefore, I wouldn’t say “poorly” is an accurate term to describe the reseller market. Sure, the recovery isn’t as impressive as with stocks but it should come as no surprise since due to the lack of institutional investors, the benefits of QE haven’t reached the domaining industry.