Domainers who are worried about what happened in Greece (closed banks, capital controls and so on) and even more importantly China (stock market correction, possible bumpy landing) might be tempted to consider domains an oasis. An asset class that is somehow immune to financial calamities.

Unfortunately, while I love domains just as much as you guys, we have to understand that our industry will never be an oasis.

In fact, it’s the exact opposite.

Instead of being an industry which isn’t affected by financial calamities, it’s one of the first to react negatively whenever there’s economic turbulence. This is because, as mentioned on DomainingTips on more than one occasion, domains are risk assets.

In other words, assets which generate high returns but which are considerably riskier than others.

If you invest in domains to “protect” yourself against the next financial crisis, you’re doing it wrong and might be in for a bitter disappointment. You invest in domains to generate high returns, not to protect yourself. Domaining 101. When the market is euphoric and everyone is optimistic, the risk appetite of investor rises and risky asset classes such as domains tend to do well.

However, whenever there are threatening clouds on the horizon, the same investors panic and what do they do first? They sell risk assets and a flight to safety ensues, with investors scrambling to buy assets perceived as safe such as government bonds. Maybe you agree with the fact that government bonds are perceived as safe, maybe you don’t. It doesn’t matter, what matters is that this is how investors currently perceive things.

So when (not if) the next financial crisis rears its ugly head, don’t assume your domain portfolio will act as an armor which protects you. It won’t. In fact, domain values will probably be among the first to fall and the fall in question will most likely be more spectacular than with other asset classes.

Back when the 2007-2008 financial crisis appeared, domainers lived in denial. They laughed, blinded by euphoria and assumed domain values can’t possibly be affected. After all, the Internet is hot and domains are hot, right? As we all know, they were proven wrong and domain values fell. At this point, domain values have recovered and in some cases (short domains), they exceeded the pre-2007/2008 level. But it took a painfully long time for this to happen and lessons should be learned.

By all means, invest in domains.

But invest for the right reasons. Know the nature of the asset class you’re investing in. Domain values go up during bubbly times of euphoria and down during times of turbulence. This is how things currently stand and while there are no 100% certainties, we have more than enough reasons to believe the situation won’t be different when we’ll be dealing with the next financial calamity.