I’ve been ‘collecting’ domain names for several years now, but have only recently started thinking of them as investments. In that sense, I consider myself new to the domaining industry even though I’ve had a portfolio for some time.

In these early days, I’m soaking up as much information as I can and am trying to distill all of it into a framework that can guide me over the long haul.

So far, I’ve managed to identify five principles that I’m using to guide my early domaining efforts. I find them useful and hope that others will, too.

They are, in no particular order:

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1. Forget the race for crazy easy money…it’s over

The race to grab ultra generic domains (think supplies.com, chocolate.com) at bargain basement prices that fit my budget is over. While I think that some of these great domains are still being sold at less than their actual value, the selling prices are out of my league. Maybe some day I’ll be able to jump into this game, but for right now I’ve got to focus on strategies that will work for me and my situation.

2. Be like Ali - Float like a butterfly and sting like a bee

Speaking of my situation - sometimes being the small guy in a space has its benefits. There’s a very good reason that pharmaceutical companies (and other well-established businesses) buy smaller companies with great products. They think better. Come up with better ideas. They’re more nimble. They’re better innovators.

I’m the small guy in the domaining space. To be successful, I’ve got to be innovative. I need to get ahead of the curve. I need to forget the great domains that work today, and think of the great domains that will work tomorrow. What will the great generic domains of tomorrow be? This strategy has already yielded some great results.

3. Be like Warren - Buy and hold

One of the biggest problems with holding domain names as investments is the valuation question. They’re incredibly difficult to price.

But, when you couple the valuation problem with the common belief that values are going to continue to increase at a sharp trajectory, the best investment strategy seems to be buy and hold. If you sell early, you run the risk of hitting the low part of the questionable valuation window.

Assuming cash flow is not an issue, you avoid this trap by holding for the long term…valuations will undoubtedly become more predictable as time goes on, and you’re likely to realize better returns on your good domains once this starts to happen.

4. Work!

People seem to think that domain investing is easy. Bull crap! This is hard work, especially when you consider principle #2 above. The strategies I’m using require an incredible amount of work. I read constantly, document and organize my notes and thoughts all the time, and analyze trends any time I can. And then there’s the portfolio management side of things!

Work! Work! Work!

I think domaining will, over time, see a lot of new people come and go simply because of the work involved. Many people will rush in thinking they’re going to retire early and rich, only to let their efforts wither because they were afraid of (or unaware of) the work that must be done.

5. Be ready when the elevator arrives

Despite principle #3, it seems to me that a big part of this industry - at this early stage - is opportunity. There are limited opportunities to get your domains in front of the big money in the industry. When it happens, you’ve got to be ready. You should always know which domains in your portfolio are your top 5 or 10, and be prepared to concisely explain their value to someone at a moment’s notice.

Simply put, you never know when opportunity will knock, and you’ve got to be prepared when it does.

I hope others find these principles useful (or at least interesting).