I’ve been recently talking to an enthusiastic Website investor.
His case:
“I understand and love diversification! Hence, I’ve acquired 10 US-based product review websites, each at around $20k.”
💥 A great example of the very same underlying issues, that led to the subprime mortgage crisis in 07.
Here’s why:
a) The investor bundled a couple of assets in the same category (Content Sites) as well as the same vertical (product reviews) in one country (US). He’s at risk if his leading eCom partners are cutting their affiliate rates or closing their affiliate program altogether, as they are amounting to 80% of his revenue and were, of course, the basis of the asset value calculation.
b) Product reviews are nowadays a highly competitive market, and the investor’s sites are heavily dependent on organic traffic. Currently, there are not many options to hedge against this risk from his position as the sites are young, no established brands with no social media outlets or newsletter subscribers attached.
c) Diversifying into ‘ultra nano’ cap, highest risk, highest volatility assets might not be the best choice, as this “diversified” portfolio has a much higher overall risk compared to an established, $200k website with truly diversified revenue and traffic streams and, ideally, an international audience.
More is not always better.
And even a greater issue, if you feel protected by diversification without realizing the flaws.
🤞 Fingers crossed for this investor that it’ll work out as anticipated…