With any form of investing, knowledge is an invaluable resource. A shrewd investor will invest his money where he believes he will make a good return. His assumption would normally be based on solid and trustworthy information, and fairly realistic projections.
When investments go bad, it’s normally due to unforeseen events, such as those which are out of the investor’s control, or the fact that the investor relied on poor and/or unverified information to begin with.
On the other hand, some investors simply invest because there is a lot of hype surrounding a product and service, and they invest out of the fear of missing out. This is where the investor fears that he may miss out on big dividends and returns, should the hype materialize into solid returns.
According to Wikipedia, Fear of missing out (FOMO) “is a form of social anxiety — a compulsive concern that one might miss an opportunity for social interaction, a novel experience, profitable investment or other satisfying event. This is especially associated with modern technologies such as mobile phones and social networking” services.”
Where domain investing is concerned, the FOMO is ever present with the introduction of any new Top Level Domain (TLD or domain extension). Domain investors fear that if they do not register/buy domain names in the new TLD, then they will miss out on domain aftermarket sales should the TLD become very popular with end users.
This type of domain investor will rush in from the start to register as many domain names as their bank balances and credit cards can afford. Their strategy is to register the domain names in these new TLDs and hoard them. If an end user (company, entrepreneur, brand etc.) comes knocking later, wishing to purchase one of their domain name in the new TLD for their ebusiness, the domain investor has the potential to earn huge profits.
Let’s say the domain investor registered a domain name in the new TLD for $20. If he can successfully sell that domain name later for $1,000, then his profit would be $980. That would be a profit margin of 4900%.
If the investor had stockpiled a decent amount of domain names in the new TLD, then he is in a position to achieve this type of return multiple times over.
An investment of $1,000 would get him 50 x $20 domain names at registration fee. If he sells these 50 domains at $1,000 each, then he stands to gain a whopping $49,000 in profits. Even the most elaborate Ponzi schemes would find it hard to emulate this type of return.
The reality of the matter is that most of these domain investors end up getting burnt and losing their investments with little or no returns. They are left holding useless domains and domain portfolios.
This is mainly to do with the fact that most new TLDs on a whole or in part have no brand-related intrinsic value. In other words, it would be quite difficult to successfully brand an ebusiness on the new TLD. As such, most domain names on the new TLD would be worthless on the domain aftermarket, as they would have no value to end users.
Often it’s not a case of the TLD not having branding potential, but rather the choice of domain names (Lower Level Domains or left of the dot) that the investors chose to acquire.