Why You Should Invest in Web Properties

Investing in websites

If I could show you how to get a 25%+ annual return on investment, would you be interested?

If you could have control over the performance of that investment, would you be interested?

Of course you would!

Please forgive the sales tactics — I had to get your attention.

I discovered a new alternative investment when I started working with Latona;s Web property brokerage. Let me just reveal that I am working in the capacity of a business analyst for Latona’s — I am not a sales rep. However, I get to look at each website that is listed by the company. I get to ask the probing questions. I get to view all the weaknesses and identify the opportunities.

And I am impressed by the potential websites have as investments.

Here are some things you need to know:

  1. Many websites make their money primarily from the advertising displayed on the site. Yes, you know websites have advertising, but did you realize how much money?
    1. I recently worked with one site that had advertising revenues of more than $1 million with approximately $800,000 left over after expenses. The site attracts more than 1 million unique visitors each month and has been chugging along very profitably for nearly 2 decades.
    2. Average sites that attract 1,000+ unique visitors monthly often earn $50,000 to $100,000+ annually with expenses lower than 10%
  2. Most websites sell for between 2X revenues and 4X EBITDA.
    1. That means your investment can pay off in 2 to 4 years, if you just maintain the status quo.
    2. Most of these Web properties can be improved to increase traffic and advertising revenues.
  3. There is a growing population of venture investors who are investing in and improving Web properties — and they are making big money.
    1. The investment benefits of Web properties has not been recognized by the mainstream — yet.
    2. The investors operate portfolios of Web properties, keeping some for revenue, improving others and then selling them at higher prices.
    3. Investors either outsource management to inexpensive offshore companies that do excellent work, or they maintain an in-house management team — usually fewer than 5 contractors for the biggest portfolios.
  4. Online advertising is growing.
    1. Here is the headline from the IAB’s October 2014 press release announcing the results of the first half 2014:

      Digital Ad Revenues Hit Landmark High in First Half — High of 2014, Surging to $23.1 Billion, According to IAB Internet Advertising Revenue Report — Mobile Jumps 76% Year-over-Year & Overtakes Banner Ads

Yes, there are caveats. Working with a reputable Web property brokerage and doing your due diligence is, as you would with any venture investment, is the best way to protect your money.

Financing is often available, but the process of buying a Web property is negotiable. Often the current owners will accept payments over time. The asking price is negotiable. The terms are negotiable.

This is a young investment marketplace, which means that there are plenty of opportunities! As mainstream investors continue to seek alternatives to bonds and stocks, they will eventually find Web properties. When that happens, these properties will become more expensive.

If you have questions about investing in Web properties, or selling your developed website, please feel free to contact me through LinkedIn.

Time for Caution …

A friend sent me the following chart and part of an article that claimed moderation of margin rate of change is an indication of continued rally in the S&P 500.  I added the notes in the yellow text boxes

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This is what I think of the claim that moderating margin debt might be an indicator of a further rise in the S&P 500 — First, computer trading has been in the market since the mid-1990s and if you look closely you can see the Crash of 1997 and the rise in margin debt as the Fed pumped money into the system. In 2000 it was the demise of the dot-coms followed by 9/11 and cautious use of margin following a peak. Well I think the peaks are retail investors and some less-than-bright hedge funds driven by greed to get into the market for what they expect to be a big rally [I feel claims of potential rally conditions are “jaw boning” – a Wall Street term for spinning things to draw in unsuspecting investors]. Right now the professionals are being careful and if the rate of margin increases, I would think that is the ‘stupid factor’ coming into the market, which signals a coming crash.
 
Look at the above chart in conjunction with another article that I believe supports what I am saying about conditions in the marketplace. CNN’s Fear-Greed Index:
 
What this all means to entrepreneurs, and anyone else for that matter, is BE CAUTIOUS.
 
 
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The Jaws of Death – Entrepreneurs Beware!

The Jaws of Death - Entrepreneurs Beware!

This is an article from Kitco everyone should read!
http://www.kitco.com/ind/Taylor/2013-10-11-The-Jaws-of-Death.html

It shows a likely stock market crash on the way, and that brings on very difficult times for everyone. In this case, on top of the most sluggish and prolonged recovery from recession I have ever witnessed, it could quite easily create a situation much worse than the Great Recession.

I know you get sick of hearing me warn about over-expanding before you know what is around the corner … well … this just might be the monster around the next corner.

I know you are also tired of me warning about taking on debt at this time, but if things look like like what this chart is showing, debt will strangle you!

And, although I no longer carry my mountains of securities industry licenses, and I can’t give investment advice, I can say that you might want to read up on the subject of “Protective Puts” if you have any investments in the stock market.

What ‘No Fed Tapering’ Means to You and Your Business

Yesterday, the Federal Reserve blew it.

Ben Bernanke nervously [and he did look nervous] announced that the Fed would continue quantitative easing (QE) because the Board of Governors didn’t think the economy was strong enough to curtail monetary stimulus.  Oh, but inflation is not a problem. [Yeah, right. Have you been to the supermarket recently? Has your rent increased? Your cable bill? Your fuel costs? And are you making more money to pay for all this? No?]

As you already know from our statement, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and to make no change in either its asset purchase program or its forward guidance regarding the federal funds rate target. [see http://www.federalreserve.gov/files/FOMCpresconf20130918.pdf for the text of Chairman Bernanke’s statement]

The carnivores on Wall Street couldn’t believe their luck because the bond market rallied and the stock market rallied and every one of them made a lot of money. However, the Fed’s actions also caused them to worry.  Here is the problem:

The markets had already adjusted

I have already talked about how rumors of Fed tapering off its stimulus buying of Treasury bonds [also known as monetizing the debt – dumping $85 billion per month into the economy] caused the bond market to take a dive, which drove interest rates higher. The markets had already discounted Fed taper. Now we know tapering won’t happen until unemployment reaches 6 1/2 percent … expected in 2015 or 2016. That means the stimulus will continue for the foreseeable future.

Where is all that money going?

The money has gone into the coffers of financial institutions, which is where it always goes when the Fed adds money to the nation’s money supply. This is done under the assumption that when the financial institutions have money, they will use that money to lend out to consumers and small business. When money is lent to consumers, they buy houses, cars and other expensive items. This creates jobs in the manufacture and distribution of these products and that helps the economy recover from recession. When money is lent to small business, it is used to expand the businesses by creating new products, buying raw materials, manufacturing and hiring new employees.

Very little of that has been happening since Fed stimulus began after the Credit Crisis of 2008. Part of the reason why it hasn’t happened is interest rates were already very low thanks to Chairman Greenspan’s extensive lowering of rates to spur the housing market [which resulted in the housing bubble and mortgage woes].  The reason is that, at current interest rates, banks aren’t getting paid to take on risk so they are making loans to only the safest borrowers — major corporations and wealthy individuals.

Banks are businesses, too

No matter how much you hate your bank, it is a business and it must make profits to survive. In fact, back in the 1980s when I was the asset/liability manager of a major financial institution, banks needed 200 basis points above their borrowing costs to break even and I bet that they now need an even larger spread. In other words, if they borrow money at 1%, they have to lend it out at 3% or higher to break even — that’s not making a profit, by the way. With interest rates so low, banks resist lending money long term in hopes interest rates will rise so they can increase earnings. You may have noticed that you are getting higher fees on nearly everything you do at banks plus all kinds of offers of things to buy. Banks have been forced out of the banking business and into the sales and marketing business, in effect.

So where is $85 billion a month going?

The big corporations are using their borrowing power to invest overseas in factories and employees where such investments are inexpensive. After all, big corporations are businesses, too, and they need to make profits. This is important to understand in terms of how little extra money the American consumer has to spend these days. Corporations must be able to supply goods and services at low prices, and to do that, they must go overseas for their manufacturing.

The stock market is rallying because corporations are making profits and institutional investors can buy lots of stock on very low margin rates and even borrow extra money at low rates, and they dump all this money into the stock market to get a bigger return than they could get at the bank or in bonds.

So the $85 billion a month is primarily going everywhere else than it was intended to go, which was into loans to consumers and small business.

So why did the Fed make a mistake?

Well, they decided to continue the QE and that means the problem described above is going to continue, as well. Even Wall Street realizes that low rates are bad for the economy, so the bond market and stock investors carefully prepared for the expected rise in interest rates. The markets discounted the rise in rates. However, now the Fed will continue the stimulus and not raise interest rates. That doesn’t mean that the bond market won’t raise rates because of the risk to the economy. There is a term for this: Bond Vigilantes.  They show up when the Fed is doing stupid things that are actually harmful to the economy. The bond market traders and investors start requiring higher interest rates on the money they invest because they see risk in the economy and the possibility of serious inflation in the future. [‘Inflation‘ refers to inflation in the money supply which creates way too many dollars chasing a fixed amount of goods and services. When that happens, prices rise because they can. Someone will always pay the higher price.]

As I write this, I am monitoring the movement of the bond market on the Treasury 10-year and 30-year bonds. Since yesterday, they have rallied only about 15 basis points, which is not huge in terms of rallies. Yes, anyone holding bonds yesterday made money today, but the market didn’t return to the levels of prior to the tapering talk. I think the Bond Vigilantes are just waiting to jump in.

I am going to continue this diatribe later. For now, feel free to ask questions by emailing me at vduff@ConfidentialBusinessCoaching.com or fill out the contact form below.

A Look at the Economic Future

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I want to take a break from talking about re-inventing a business to focus on a trend I find worrisome.  One of my favorite economists, Joseph Barbuto has been talking about this.

This is a chart depicting the velocity of money, thanks to one of the best economists I knew on Wall Street –  Lacy Hunt at Hoisington Investment Management.

The velocity of money is important because it tells us where the money in the economy is going.

When money velocity is high, the money currently in the system is flowing freely throughout the economy.  Wages rise, banks make loans, businesses thrive.  Of course, when money velocity is too high it creates inflation.

When the velocity of money is low as depicted in the above chart, money in the system is not reaching Main Street.  This is important particularly now because the Federal Reserve has spent recent years pumping money into the system.  Where has all that money gone?  Well, banks [including the big brokerage firms that have shifted their legal identities to include that of banking institutions], and banks are lending to only the highest rungs of the credit ladder  — brokerage firms, big companies and institutional investors.

The velocity of money creates pools in specific asset classes  —  In the above chart, the velocity of money declined after 2000 and it pooled in the housing market.  After the housing bubble burst in 2005 the velocity of money increased until it became clear that a lot of this money was disappearing in loan defaults.  That’s when the Fed dropped interest rates and began pumping money into the system to try to get the economy back on track.

Note that this didn’t increase the velocity of money.

Money is pooling in institutional investment accounts where it created a bubble in the stock market, emerging economies, gold and may even be creating another bubble in institutional investment in housing.  Much of the improvement in the US housing market has been due to hedge funds and foreign investors buying blocks of houses/apartments to use as rental properties.  However, money has been conspicuously absent from job creation, wages, and consumer credit.

What a lot of top economists are wondering right now is when the investment asset bubble will burst.  This is something you should wonder, as well.

Another economic crisis will compound your struggles over the past years, so start conserving money and lowering your expenses now.

When money velocity is rising, it means the economy is expanding. Production capacity is increasing. Deposits from rising wages are being lent and invested effectively. Essentially, more money is moving around the economy, in the places it should. Late 1978 into 1997 was such a period.

When money velocity starts to fall (as we saw after 1918 or 1997), it means investment is increasingly speculative. Less money is spent on productivity enhancements or capacity improvements. Workers’ wages stagnate or fall, so they spend less. Basically, the money flow shifts.

Think of it like our circulation. When money velocity is rising, blood is flowing through all our veins and arteries smoothly, feeding our muscles and organs the necessary nutrients and oxygen we need to function optimally. When money velocity is falling, blockages form and the blood pools dangerously. Blood clots and strokes become a constant threat.

When money velocity drops below average levels, as the black line in the chart above shows, then those bubbles and the debt behind them are starting to deleverage, and that causes deflation and negative money velocity.

– See more at: http://survive-prosper.com/2013/08/28/why-quantitative-easing-has-not-created-inflation-and-why-it-wont/#sthash.kdoDLpyH.8FWgXJhU.dpuf

When money velocity is rising, it means the economy is expanding. Production capacity is increasing. Deposits from rising wages are being lent and invested effectively. Essentially, more money is moving around the economy, in the places it should. Late 1978 into 1997 was such a period.

When money velocity starts to fall (as we saw after 1918 or 1997), it means investment is increasingly speculative. Less money is spent on productivity enhancements or capacity improvements. Workers’ wages stagnate or fall, so they spend less. Basically, the money flow shifts.

Think of it like our circulation. When money velocity is rising, blood is flowing through all our veins and arteries smoothly, feeding our muscles and organs the necessary nutrients and oxygen we need to function optimally. When money velocity is falling, blockages form and the blood pools dangerously. Blood clots and strokes become a constant threat.

When money velocity drops below average levels, as the black line in the chart above shows, then those bubbles and the debt behind them are starting to deleverage, and that causes deflation and negative money velocity.

– See more at: http://survive-prosper.com/2013/08/28/why-quantitative-easing-has-not-created-inflation-and-why-it-wont/#sthash.kdoDLpyH.8FWgXJhU.dpuf

When money velocity is rising, it means the economy is expanding. Production capacity is increasing. Deposits from rising wages are being lent and invested effectively. Essentially, more money is moving around the economy, in the places it should. Late 1978 into 1997 was such a period.

When money velocity starts to fall (as we saw after 1918 or 1997), it means investment is increasingly speculative. Less money is spent on productivity enhancements or capacity improvements. Workers’ wages stagnate or fall, so they spend less. Basically, the money flow shifts.

Think of it like our circulation. When money velocity is rising, blood is flowing through all our veins and arteries smoothly, feeding our muscles and organs the necessary nutrients and oxygen we need to function optimally. When money velocity is falling, blockages form and the blood pools dangerously. Blood clots and strokes become a constant threat.

When money velocity drops below average levels, as the black line in the chart above shows, then those bubbles and the debt behind them are starting to deleverage, and that causes deflation and negative money velocity.

– See more at: http://survive-prosper.com/2013/08/28/why-quantitative-easing-has-not-created-inflation-and-why-it-wont/#sthash.kdoDLpyH.8FWgXJhU.dpuf