Focus on a Few or Diversify in Domain Name Investing?

Is it better to focus on a few or even one type of domain name in domain name investing and become an expert in that area, or is it better to diversify?

If you specialize in only one type of domain name, then it may be good in good times, but it may be bad in bad times. On the other hand, if you invest in almost all extensions and domains, then you will get nowhere.

I. Specialize your investments

There are good reasons to specialize in one or more types of domains, including the following:

1. you become an expert in the field and learn how to price domains, which domains are more likely to sell and what potential buyers are out there.

2. you learn the best way to acquire domains in your area of expertise and instinctively learn the right wholesale price.

3. This can be a much more efficient use of your time as the time required to research and price each domain name will be greatly reduced. In addition, the time spent searching and listing domain names will also be reduced.

4. You can get to know the industry and its leaders, and making connections may lead to domain sales.

However, there are risks associated with focusing on a single domain or type of domain name. The main reason for this is that you will feel the pain if there is a sudden negative change in the domain. Of course, you may also benefit if the change is a rise in interest rates.

Second, Diversification

Much has been written in the traditional investing world about the advantages of diversification - investing in stocks in different industries and geographic areas, a mix of bonds, income instruments (such as real estate investment trusts or dividend-paying stocks), commodities or currencies, and possibly other types of investments. Diversification

The rationale for a domain name portfolio is similar and includes:

1. if the value of a certain type of domain name declines, the rest of your portfolio can help soften the blow.

2. if you include trending names as only a limited portion of your overall diversified domain name portfolio, you may be able to chase some trends without excessive overall risk.

3. by being open to multiple types of names, you can capitalize on all investment opportunities.

4. although not as efficient, it may be more interesting from a time perspective to deal with different types and industries of domain names.

5. Related to the previous point, dealing with a diversified portfolio may provide better overall learning opportunities.

What would a fully diversified portfolio look like?

For the extreme case of a fully diversified domain name portfolio, some might argue that it should be constructed to reflect sales of different extensions. Here's a look at the first 24 months of data (time period ending after mid-June 2024) using NameBio, which suggests a percentage breakdown as shown below.

If we go by dollar volume over the last 24 months, the breakdown of the different extensions according to the NameBio data would look like this.

It's no surprise that the majority of your portfolio should be in .com at about 77.5%, with only 1.9% in .net and 5.9% in .org. The .ai extension has been soaring, with the past few years indicating that 3.5% will be in .ai, compared to 1.6% for .io and 0.8% for .co. Other country codes (both country codes and those that have been popularized) remain strong, which suggests a 5.2% holding of other country codes. The largest single investment in a new extension would be .xyz, but this only accounts for 1.3% of your portfolio, with all other new extensions adding another 2.1%. The "other" category includes extensions that don't belong in other categories, such as .info, .mobi, .biz and .pro.

If we get more specific, out of a portfolio of 1,000 domain names, approximately

-775 names would be .com

-59.org

-35.ai

-19.net

-16.io

-13.xyz

-8.co

-21 other new extensions

-52 other country codes

-2 or so other extensions like .info or .biz

Of course, strictly speaking, we should diversify by investing money rather than the number of domain names.

Diversification is not just about extensions.

But really, a diversified portfolio should consider more than just breaking it down by extension. You can also diversify in terms of domain types, such as word and two-word names, brand names, numbers, alphanumerics, and more.

Additionally, you might consider diversifying based on industry, e.g. some of your names relate to FinTech, SaaS, Space, Environment, Health, Fashion, Travel, Artificial Intelligence, Gaming, Gambling, Cryptocurrencies, Arts, Education, Services, Retail, Real Estate, and so on. I will cover this aspect in more detail in a future NamePros blog post.

The Domain Matrix

To demonstrate the many types of domains possible, even without taking into account the different industry sectors and segments, a 7x7 domain matrix was created here. To be clear, I'm not encouraging you to invest in all of these, but rather see this as a checklist to consider if you're looking for a new niche to consider.

The 49 Block Matrix outlines some of the domain extensions and types of domains that you can invest in. For a description of each term, see the "More Information on Domain Matrix Terms" section.

In some cases, multiple boxes can be checked for a single domain sale. Are there any purists out there who put all their sales in one box? Does anyone have a track record of diversifying their sales by checking more than 25 boxes?

If you are confused by the seemingly random order of the boxes, I usually place the more common options near the center. Probably almost all investors have 2-word .coms, and many also invest in .io, .org, brands, etc., so those are near the center. Fewer people invest in domain twins, emoji, or decentralized domains, so I put them near the edges.