March 6, 2012, 5:00 am

Investing Sucks, Blogging Rules

by: The Financial Blogger    Category: Alternative Income,Investing Ideas,Investment, Market and Risk
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A few weeks earlier, my partner sent me an email telling me how interesting it would be to write an article about the difference between dividend investing and making money online. He thought it would be fun as I’m a big fan of both dividend stocks and making money blogging. But there is a law out there that says that great minds think alike. Well if I’d do my post today ignoring this law, I would have to ignore Dividend Ninja’s guest article on Young & Thrifty: Website Income Vs Dividend Stocks: Which One Come Out On Top?

 

I was stunned that someone had the same idea but was 10 times faster than me to write an excellent article ;-). My comments on the site were that I thought it would be easier to make money through dividend investing than through a website. But this is for Mr and Mrs anybody. But what I didn’t say is:

If you know what you are doing; you will make a LOT more money through websites than through investing!

 

You want to know why? Here are a few reasons:

 

#1 Growth Potential is Bigger With a Website

The growth potential with a company is usually pretty limited compared to the growth coming from a website. The main reason is that the company being listed on the stock market has already grown for several years before issuing its first IPO. Therefore, you are buying a company that has already gone through its most beautiful growth years. For example, private investors that were able to invest in Google in Year 1 or 2 would have made 100000% on their investment as compared to those who got into the stock after its first IPO. The same story is about to repeat with Facebook in a few months. I doubt that FB will see such incredible growth in the upcoming years. Now, you can expect a double digit growth (that is still interesting) but you’ll never see triple, 4 or 5 digit growth as it has in the past.

 

The potential growth is usually even worse for dividend stocks. In order to be able to pay dividends, a company must be stable and also willing to sacrifice a part of its growth potential since it is distributing cash flow to its investors instead of using this money to grow even faster.

 

On the other hand, a website is usually a very small property. And what do all small properties have in common? They have a huge potential for growth! So this is whyUSgrowth is slower thanChina’s. This is also why my son learns more things and learns them faster than me ;-). Websites have this potential to grow by 20% each year for several years. Just take my company’s revenue since I started:

2008: $9,459

2009: $33,412 (+253%)

2010: $74,854 (I’m excluding important sales in this year) (+124%)

2011: $114,158 (+52%)

 

#2 ROI is Higher With a Website

 

I’ve recently mentioned that you can buy a major website for 36 times the monthly income. Some people told me that I was a nutcase. Fine. But when you think about it, this is some incredible return on investment! Forget the blogger’s or pity individuals’ perspectives for a moment and focus on an investor point of view: You have $50,000 to invest. Your first option is to buy a stock (or a group of stocks) paying a 4% dividend. This will generate a $2,000 dividend payout each year + the potential of seeing your portfolio grow over time. If you are a top notch investor, you will most likely get a 8% investment return over the long run (4% dividend + 4% in capital gains).

 

Why do I count only 4% in capital return? Because, historically, the stock market shows an investment yield of 9% (before fees and taxes). So unless you are the next Warren Buffet, you won’t be able to score over 8% after a period of 5 – 10 years. The main reason why you can’t score higher is due to the lack of information and comprehension. You are limited to your own little brain reading financial statements. You are not in the company, not managing the business and don’t have the feel of the company.

 

Now, consider a second investment proposition and look at a blog or a group of blogs to be bought for $50,000. At 36 times the monthly income (and you are not getting a deal at that price!), you will get a yearly dividend of $16,666. This is more than EIGHT TIMES your dividend investment. The best part is that you can expect a much higher growth from the value and income generated from the same sites due to the reasons explained in point #1.

 

The only thing to consider is that you need to spend time to manage the website. But technically, a minimum of 5 hours per week would be enough to keep the revenue as is. Therefore, if you “pay yourself” $25/hour, you are now down to a “dividend” of $10,166 per year. This is the same as a 20% dividend yield. Even better, if you are smart enough, you’ll find someone that you will pay $125/week to manage the site for you. I can send you a few names of good bloggers that would be glad to it ;-).

 

#3 You Have a Better Risk Assessment With Websites

 

As I previously mentioned, you don’t get hold of every single little detail about each stock you own. You can read the financial statements but you can’t get in touch with every CEO to know what is truly going on within the companies’ walls.

 

This is something you can do when you own your site. You get access to all the stats and can see in a heartbeat if there is any problem with it. Better knowledge leads to better risk assessment. On the other hand, if you don’t know what you do with websites, this can be highly dangerous too! Always invest in something that you understand, says Buffett!

 

Where would you put your next $10,000?

 

I’ve been telling you that investment sucks during the whole article but it doesn’t mean that I don’t invest in the stock market. In fact, I’m maximizing my RRSP account each year because I think it is good to have a great diversification across all your assets. But to be honest, my RRSP account is my “B plan” along with my company shares. So if I have another $10,000, guess where I would put it ;-). But what about you? What would you do with $10,000?

 

 

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Comments

Interesting post and while I agree with the general conclusion, I personally feel that in most cases, risk assessment is much easier to make and more precise in stock market investing.. when I buy a company such as Pepsi (PEP), I’m not entirely sure how things will go and it might lose 10-20% or gain the same… but I do have a fairly good idea of what could move the stock, risks, etc

When buying a website, you are at the mercy of Google updates, specific advertisers, models, pagerank, adsense, etc… it can all change very quickly and that is much more of a “gamble”..worth it? absolutely because of the valuations and risk/reward..but still

Just my 2 cents:)

LOVE the post! I have been wrestling with the same idea, especially with the return I have been seeing. I think the difference is that there is a somewhat calming feeling that I am shifting risk from HIGH RISK (google gets cute with another panda) to a little less HIGH RISK (mutli-billion dollar market cap company that is unlikely to go under).

I don’t know that this is a fair comparison. Investing is something that everybody should be doing no matter what their occupation is. Blogging is, well… an occupation. It’s a startup business, it’s a career, and it requires years of training to do it right.

A better comparison is blogging vs. working. Blogging is riskier than working–there are a LOT of broke bloggers out there who have 2,000 tweets and under $2,000 coming in. But blogging can be more rewarding than working–although perhaps not in all cases, for example Google/Facebook early employees.

Even successful bloggers should learn how to invest. No matter how successful you are, that success is only one piece of bad P.R. away from crumbling to dust.

by: The Financial Blogger | March 6th, 2012 (5:51 pm)

@IS,
I’m sure that people who once hold NT, RIM, BP, Citi Group, etc thought they were able to asses their risk correctly. Even PEP, what if we discover that the Pepsi (or Fritos) cause cancer? This can change very quickly as well.

@Evan,
I guess the best strategy is to diversify (buy blogs and buy stocks).It is very unlikely that you will lose a lot of money on both ends at the same time ;-)

@Jason,
You are definitely right. Investments are open to everybody but not blogging. But since several people make the parallel between real estate and investing I thought I would do the same with blogs :-)

I have made that parallel myself in an article I wrote “Real Estate or Stocks.”

I never considered purchasing sites. Maybe because I feel that it will be too much work to manage many sites. The rate of return is definitely more than most stocks.

However, it isn’t more than my rental properties (adjusted for paying yourself for time spent on maintaining sites). Blogs do not require the large capital investment that real estate does and that’s definitely a bonus! :)

by: The Financial Blogger | March 6th, 2012 (6:51 pm)

Hey Taline,

I’d like to have your thoughts on my comparison between Real Estate and blogs:
http://www.thefinancialblogger.com/buying-blogs/

I actually think you will make more money with stocks than Real Estate.

Looking forward to read what you have to say about it ;-)

cheers,

Mike

I love this post! I’ve been wanting to start more websites. When I have more time, I definitely will.

@TFB – Absolutely, I agree, but which is a more volatile environment? I would argue that a company like Pepsi is more “stable” than most internet websites

Hey Mike,

Definitely….I’m gonna check it out as soon as I hit submit on this comment.

My site is under re-construction now and will be up and running in a day…please check out my article also and let me know what you think. I would greatly appreciate it :)

Hey Mike,

What’s the correct link to the article?

by: The Financial Blogger | March 6th, 2012 (9:05 pm)

Diversification is the key! I think TFB has it right.

Hey Mike,

Thanx a lot for the stellar mention! :) If I wrote a post that grabbed your attention that vividly, then yah it has to be good right? It just wasn’t the colours on Y&T’s site right? I promise I won’t let that go to my head!! but it is good for my ego LOL.

The key point as you mentioned is “If you know what you are doing” isn’t it?

Most boggers focus on writing and hope for the best, or throw some ads up and expect to make some significant revenue. They simply don’t understand the premise that the website as a business model. If you don’t think about marketing, monetization, or treating your blog as a business, then how can you make any significant money from it? As soon as I hear someone talk about their blog as a hobby, I know it won’t generate revenue.

I also think there is a big luck factor too, I mean there are bloggers who do everything right, but it just doesn’t work for them. There isn’t the wow factor. I’ve been very lucky with the Ninja. But I really believe anyone can make money off websites if they really work at it, and treat it like a business – I really do! And I still have a long way to go LOL.

However I have no intention of cashing in my dividend stocks and bond ETFs, rather I will take the income off my websites and invest that into my investments :) I don’t need to buy blogs Mike, I just build them ;)

Cheers and thanx again for the mention!!
The Dividend Ninja

by: The Financial Blogger | March 6th, 2012 (11:11 pm)

I guess the thing is that most people don’t know much about investment either ;-) lol! But seriously, there are resources for people who wants to invest but don’t know where to start. It’s much harder for bloggers who want to make money ;-).

Building websites is cool, but I know that I would have never been able to build a site like Dividend Guy Blog from scratch.

I’m still undecided lol! Certainly the blogging is- right now- beating my dividend income, but who knows when that will stop, right? I think with a short time trajectory, like a few years, blogging will beat dividend income. But over decades, dividend income will win.

Thanks for the mention by the way and I like your recent “addition” to your blogging portfolio ;)

Hi Mike (I’m also Mike)

I am new here. And got intrigue with your first post. I think a website can be likened to a business that grows. There’s always potential for businesses to grow rather than stocks.

So in stocks your expectations must be lower – limited by the average returns of Dow Jones or S&P.

But you forgot #4: The ability to network with like-minded people. When your network grow, your net worth follows.

Good posts.

Regards

-Meiko

The stock market has become a gamble any more. Moving one way or the other on the whim of the powerful. Websites would be more stable in my opinion.

[...] other day Mike compared investing in stocks to blogging. In this piece, Mike wrote about why he feels that you could make more money from blogging than [...]

I have been thinking about this… buying blogs and treating them as rental real estate properties. And I have some questions (did some brief looking around the site but not comprehensive, so my apologies if this was answered elsewhere):

When you buy a rental property, all you do is maintain it (new appliances, PITI, paperwork, etc.) and collect your cash flow.

But with a blog, new content creation is required. Marketing, nurturing existing user base, etc. So if I sell you my blog for $10k, then what incentive and motivation would I have to continue developing it? Unless you are willing to pay me a salary.

If you buy say 5 blogs, that is 5 sets of content that you must now create on your own time and with your own brain……..am I right? I want to understand this, thanks.

[...] The Financial Blogger  – Investing Sucks, Blogging Rules [...]

[...] Investing Sucks, Blogging Rules from The Financial Blogger – makes a very convincing argument [...]

by: The Financial Blogger | March 9th, 2012 (11:41 am)

@Jason,

I don’t agree with you that all you need to do with a rental property is to collect your cash flow. The maintain part is more demanding than it seems (if not, everybody would own a few triplexes).

You have to create new content when you buy a blog, but you also need to take care of your tenants. Nobody will call me on weekends, while I eat or in the middle of the night for my blog, tenants will. The blog won’t require that I invest $10,000 after 5 or 10 years to change the windows, paint all over the place or to repair something after a tenant from hell went through. Also, if one advertiser doesn’t pay on my blog, it takes a few minutes to take his ads back. It a little more complicated when you have tenants. One last thing, a rental property comes with high fixed costs (taxes, mortgage, electricity, etc), you don’t have that with a blog. Therefore, if you are missing some advertising income or tenant in your rental property, it will cause more damage in the latter situation.

True, my phrasing “all you do is…” doesn’t give enough credit to the work that is involved, especially dealing with tenants. Case in point, a friend of mine who owns 14 rental buildings in Queens–he has seriously been stressing out for three years now, not because of falling property values but because of tenants he’s had to evict.

On the other hand, There are proven ways to systematize the process, for example hire a property management company. Donald Trump doesn’t work the paint rollers when somebody moves out. My friend in Queens has refused to hire somebody when he can handle it himself…to the detriment of his health.

I guess my question is, how many blogs can you maintain before writers burnout starts to set in?

When I started my blog I had no idea of how much people actually made with their blogs in a sort amount of time. I can already see with my website that if I can keep my growth rate up it will be stupid of me not to monetize it in the next few months.

by: The Financial Blogger | March 9th, 2012 (5:26 pm)

@Jason,

in fact, you can streamline your process and not put much time into a blog that you buy. For example, I don’t spend more than 1 hour per month on Green Panda Treehouse. I have to pay people to take care of it but I’m still able to make money out of it ;-)

I definitely disagree with the “investing sucks” part, but it is likely just for a snappy title. All the points you make are valid, but how much longer is blogging going to be really profitable.

I am not sure how long the concept of blogging for money has been out there but I do know that it couldn’t be older than the internet. The thing that is a little scary about putting a lot of your money in blogging is that the idea is still pretty new and may not stand the test of time.

There are blogs about everything out there, and while the market for them is not limited by land or anything, it is limited by interest in the topic. There are so many blogs where I have been reading different spins on the same topics that it makes me think that the market for blogs can’t last forever.

by: The Financial Blogger | March 9th, 2012 (10:05 pm)

Well I don’t think investing sucks per se, but if you compare investing to website real estate, then it sucks ;-).

Most people will continue to watch this phenomenon from the side lines and realize that it’s a good place to make money once all the good money will be made already ;-). It’s the case each time something new comes up!

[...] I could be successful as a internet landlord (and am grateful). Just recently, he announced that he bought two more sites. While that is great for him, part of me disagrees with his approach to owning [...]

Hey Mike,

Good post. Multiple income streams is the way to a quick financial independence :)

From my point of view, both are good for diversification as you mentioned. I am curious as to how much of your personal money you funnel into M35 to fund new purchases? Basically, it makes sense when your company, M35, generate income to finance the purchases but what if it did not, would you still be funnelling your own personal income into it to keep on buying?

I think there is a difference with money earned from a company versus your personal money that pays the bills. The risk vs reward becomes very different.

Thoughts?

Another question, did you ever have to personally finance the purchase of a blog or did you always have the money in the company? If you were to do it again from the beginning, would you go and spend the same way but right away? (i.e would you have a negative balance on your company revenues to finance growth with blogs?)

Thanks,
The Passive Income Earner

by: The Financial Blogger | March 24th, 2012 (7:35 am)

Hey Passive Income Earner,

When we first started, I’ve remortgaged my house to invest in my company. If I had another great opportunity, I would not hesitate to do the same again. However, my partner and I never borrowed more than 10% of our house to put in the company. Since we both have good day jobs, 10% of our house is not a huge risk.

If you want to grow any business, sooner or later you will have to finance a part of its activities. Most of the time, you won’t be able to get external financing (especially from banks!) so you have to do it on your own.

Each time we borrow for the company, we have a clear plan to pay the loan back. We don’t want to run on debts eternally :-)

[...] blogging friend of mine, Mike from The Financial Blogger, has also talked about why blogs make better returns than dividends. He and I disagree on some things, but this is not one of them. I actually wrote a guest post about [...]

[...] blogging friend of mine, Mike from The Financial Blogger, has also talked about why blogs make better returns than dividends. He and I disagree on some things, but this is not one of them. I actually wrote a guest post about [...]