Ben Shoemate's Notebook

With the Dow Jones experiencing its biggest drop in history, and the stock market losing over 1 trillion dollars, people are looking for other places to invest their money. I recently took the money I had invested in the stock market and put it into websites. When the stock market crashed, my funds were completely unaffected. Recession or not I still consider websites to be the better investment. Historically, if you invest in the stock market for the long run, you can expect about a 10% return a year. If you invest in bonds, you can expect an even lower return.

Now let’s take a look at these returns compared to investing in a website. The first website I ever purchased was gamedip.com. The site cost me $3,000. Now, if you invested that money in the stock market you could expect a 10% return after 1 year. But let’s assume that you are an experienced trader and you crush the market with a 20% return. So after one year your $3,000 becomes $3,600. Not bad, especially considering the fact that if you left it in a savings account you would end up with $3030 (1% return).

Now let’s compare this with my first novice investment in a website. When I bought my first site, I had absolutely no idea what I was doing. I came across the listing for Gamedip and the description intrigued me. First of all, the sites content is 100% user generated; the sites users are the ones that create new games. I realized that if I bought the site all of the work was done for me. Secondly, the traffic was 100% organic (it was not paid for) so my only expense would be hosting. As far as revenue, the description said the site made about $150 a month from Google ads and affiliate links. Anyway, I bought the site, and in two months it made $280 in revenue. After two months of owning Gamedip I was contacted by someone who had wanted to purchase Gamedip at the same time I did but missed the opportunity. I told him about how great the site was (content user generated, organic traffic etc.) which made him regret that he didn’t purchase it even more. I told him I would sell him the site for $4,000. We eventually agreed at a price of $3,600. He sent me the money through PayPal (which took $100 in fees) and I ended up with a $500 dollar profit from selling the site plus $280 from Adsense revenue (minus $40 for hosting) for a total of $740 profit. $740/$3000 = a 24.6% return in only 2 months. Although this is only one example, the fact remains that this comparison takes the results of an expert stock trader against the results of a novice web site investor with the site investor racking in a larger return in 1/6 the time.

Now let’s look at the risks. With websites you have to worry about a few things. First of all there is the problem of sending a stranger thousands of dollars over the internet. Although this can be nerve racking, if you complete the transaction through an escrow service, it that ensures you will not get cheated. Basically you give the money to escrow, the buyer transfers the site to you and you have a grace period to determine if the seller gave you accurate information about the site. If you proceed through an escrow service, the possibility of someone stealing your money and giving you nothing in return is essentially eliminated. The major risk of investing in a site is that the sites revenue will be significantly less than expected. However, even if this does happen, with enough work you can increase traffic and create new revenue streams. With the stock market you have to worry about corporate scandals, market drops, and market manipulation. Both investments are relatively risky (when compared to bonds etc.) so even though in my opinion websites are the safer investment, for the purpose of this article we will assume that the risk is approximately the same.

Since investing in a website is no riskier than investing in the stock market, the better investment is clearly the one that offers the best return. Here is another personal example that will show the potential returns of a site. My second website I bought for $7,500. The site is called freebiesociety.com. The site is actually a little bit of a disappointment, bringing in only $300 a month under my management. Despite the fact that I am disappointed by the income the site still creates a 4% return a month. That translates into a 48% return in a year– 38% higher than the average yearly return of the stock market.

With such a high risk to reward ratio, websites are clearly the superior investment. The fact that not many people have realized this makes it all the better. But people are starting to catch on http://www.nytimes.com/2008/07/29/technology/29flip.html. So if you are going to get started, you better hurry up before everyone else rushes in!