Back in 2011, a friend-of-a-friend was trying to sell a domain name he had owned for a long time.
I can’t share the actual URL, but think something like “animated.com”
I had ZERO experience buying domain names. But just two months earlier, all of the top online poker sites had exited the USA market in what’s known in the poker world as Black Friday.
As a mostly online, American poker pro, I was scrambling trying to figure out what to do.
I got a (questionable) appraisal done. It showed that buying the domain name for $125k would leave me a decent cushion to compensate for my cluelessness on what to do with it… and I wired the money 💸
Over the years, I gave a few half assed attempts at monetizing it, but nothing that picked up any momentum.
Brokers listed it a couple of times, with no buyer interest whatsoever 😔
Eventually i just parked it and chalked it up as a good, expensive learning experience.
Then nearly 10 years later (on March 15th, 2021), I had a lowball offer come in for the domain. This wasn’t uncommon and I wrote it off as nothing serious… but they kept coming back asking for a number.
The free, not particularly accurate Estibot.com tool valued it at $341k.
That seemed pretty aggressive to me, and in a range I’d be happy to sell for.
So I went with $341k, and stuck to it. They countered at $40k, then $200k, then “ok you’ve got a deal at $341k.”
This all happened VERY fast.
They climbed up to my full asking price so quickly, I figured I was probably dealing with Google or a venture backed company with an unlimited budget, and that I had left a lot of money on the table.
Less than a week later, the deal was closed.
I held this domain on my books for 10 years, generated no cashflow with it, and sold it for a 2.73x return.
Sounds OK, but I would have easily outperformed by just owning an index fund.
More importantly, to realize the gain I had to basically be struck by lightning.
So anyways, this leads my to my number one of investing: liquidity, liquidity, liquidity.
Illiquid assets that generate no cashflow can put you in a really tough spot. You have very little leverage and are basically sitting on your hands, hoping a buyer comes along.
If you’re ever in a cash crunch, you are forced to firesale into a market with few buyers and take a HUGE haircut.
There are plenty of examples showing people tend to sell assets at the worst possible time, and you are punished so much more badly in this respect with an illiquid asset.
ESPECIALLY if you’re an entrepreneur or investor, in my experience maybe you get a couple of opportunities each decade where you want to fire really big. If you’re stuck in a bunch of illiquid investments, and can’t make the most of these spots… you’re really handcuffed.
If I’m going to invest in something illiquid, and it isn’t going to generate cashflow or realize an exit anytime soon – I want either:
1. to be betting on myself
2. a massive premium (to an index fund, for example) on the expected value of the investment