Long tail investing means looking outside the norm regarding potential investments.
For example, if traditional investing means opening an account with a cheap online broker and putting your money into stocks, bonds, mutual funds, and ETFs, long tail investing might be any of the following:
Get into a new kind of trading: No, I’m not talking about day trading stocks. I’m talking about building a simple trading business that involves buying goods in another country and selling it in America. For instance, you can buy goods from China and find a way to distribute them in local stores.
Investing in foreclosures: With the real estate investment climate still in the doldrums, foreclosures are common. If you take your time to shop around, researching numerous different properties, you may find one with the potential for very high returns.
Buying websites: Would you consider buying virtual real estate on the web and turning it around for a profit? It may not take much to monetize such websites to help them increase their value.
[Mike's note: If I had more free time, I'd be buying defunct blogs left and right. After they quit blogging, many writers let their sites sit there (making no money), despite the fact that they continue to get traffic from search engines.]
As you can see, long tail investing is often a combination of investing and entrepreneurship.
Is Long Tail Investing High Risk?
You may think that long tail investing is riskier than traditional investing. That’s not necessarily the case. Yes, such investments can be high risk, but I’m not at all sure they’re riskier than, say, a small-cap value mutual fund — something which in many circumstances is considered to be a prudent investment.
Long tail investments have two unique risk-mitigating factors.
First, when searching for long tail investments, you have the opportunity to narrow the field to niches with which you’re intimately familiar. With large, publicly-traded companies, there’s no way to have this intimate level of knowledge unless you work for the company — in which case it becomes a terrible idea to put much of your money there.
Second, after making the initial investment, you play a direct role in the outcome via your resourcefulness and work ethic. This is quite different from stocks or mutual funds where you have no control over what returns are earned.
Finding Long Tail Opportunities
The trick is to look for niche strategies, because that’s where the undiscovered opportunities will lie. Do not simply go for the first potential investments you come across.
With this type of investing, you may stumble upon a niche that may become more widely known as time goes on. If you explore the options now, you can potentially get a good return on your investments before many other people realize what is happening.