What ROI really means...

[DanBUK]

I dunno how much I am trolling here(and I didn't search the forums for a similar post), but...

ROI == Return on investment

- Is a term that implies indefinite nature, how much return do I get per X time period based upon the Y price I purchased it for. Normally expressed as a %
- (I buy shares in WizzbangCorp, they pay dividends of $1/year and their share price is $5, so my ROI is 20% per year.)

Break Even == BREAK EVEN!!!

- How long it takes to recoup your original investment. Which does relate to ROI, but it's not ROI!

-- What everyone really means when they talk about buying miner X/Y/Z and how long it takes until they Break Even.


(The aim of this post was to avoid me replying to a post that didn't have this as question (and "really trolling") and maybe mean others start to educate the rest on their misuse of terms. I can only hope.)

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[-ck]

Yep, they all know. We've tried to correct them many times but they don't care and will go on using the term ROI in that way. Doesn't change the fact that no one will break even on anything bought now...

[DanBUK]

Thanks for your work on cgminer

I guess the fact that many don't understand that they may not break even is a benefit for others that understand things better. It's definitely good for hardware retailers

An astute "new miner" could do some trading with their gained coins to increase their gains. (That can make a big % difference; but I know not all are able todo so.)

Also the rapid (but not stable, will probably drop $100 or so) gains in the BTC/USD price makes breaking even a lot more possible.

(I'm about 10 months in to my spending to BTC/(& alt-coins) and I'm about 25% towards breaking even, I may get there, I may not, but as long as my returns from mining are less than my electric costs I can keep things running.)

[cp1]

Return on Investment can be defined many ways.  Yearly dividends as you said, or gains when selling a stock at the end.  It doesn't have to have an indefinite time period.  You could use it for a fixed term bond, a poker tournament, etc.  I don't see anything wrong with calculating bitcoin hardware ROI as (BTC earned - hardware cost in BTC) / hardware cost in BTC.  Due to the exponential nature of difficulty adjustment mining equipment has a finite life, calculated by a geometric convergent series.

[JoelKatz]

Also the rapid (but not stable, will probably drop $100 or so) gains in the BTC/USD price makes breaking even a lot more possible.

No, it makes it harder, because it encourages more mining, causing difficulty to rise more rapidly than expected. If you're already mining, your mining hardware is a sunk cost. Be able to buy mining hardware for fewer Bitcoins doesn't help you. The rising BTC/USD price favors Bitcoin holders and disfavors Bitcoin miners. (In fact, it means you have to mine for longer, which actually increases your costs slightly because mining hardware has to be maintained, needs Internet access, and so in.)

If you don't want to take a long-term long position on Bitcoins or don't have money to invest, you should not mine. If you do want to take a long-term position on Bitcoins and do have money to invest, you face a question -- should I buy and hold or should I mine? The advantage of buying and holding is that you can time your selling. The only conceivable advantage of mining would be that you get more Bitcoins that way. If it doesn't do that, it has no conceivable advantage over buying and holding but does have disadvantages. If mining is inferior to buying and holding, why would any sane person do it?

[zvs]

Also the rapid (but not stable, will probably drop $100 or so) gains in the BTC/USD price makes breaking even a lot more possible.

No, it makes it harder, because it encourages more mining, causing difficulty to rise more rapidly than expected. If you're already mining, your mining hardware is a sunk cost. Be able to buy mining hardware for fewer Bitcoins doesn't help you. The rising BTC/USD price favors Bitcoin holders and disfavors Bitcoin miners. (In fact, it means you have to mine for longer, which actually increases your costs slightly because mining hardware has to be maintained, needs Internet access, and so in.)

If you don't want to take a long-term long position on Bitcoins or don't have money to invest, you should not mine. If you do want to take a long-term position on Bitcoins and do have money to invest, you face a question -- should I buy and hold or should I mine? The advantage of buying and holding is that you can time your selling. The only conceivable advantage of mining would be that you get more Bitcoins that way. If it doesn't do that, it has no conceivable advantage over buying and holding but does have disadvantages. If mining is inferior to buying and holding, why would any sane person do it?

yeah, spot on.

Something in a similar thread about how the guy was 'getting close to ROI' on his ASIC he purchased x months ago because bitcoin price has gone up 2x... and I thought to myself, yeah, but if you had bought bitcoins at that time, you'd be up 2x instead of just struggling to get your purchase price back.

the purchase of mining gear (at a reasonable price, ofc) would be the best move to make if you think bitcoin price will remain stable

[ripple]

These days bitcoin mining equipment only has the ability to generate income between one and two years and so the general definition of ROI is most appropriate, that is the ratio produced when all gains from a transaction, less the costs associated with that transaction, are divided by the initial investment.

In comparing mining project terms where equipment is run while variable income is greater than variable costs, ROI generally equals the Total (Cumulative) Monthly Returns (gains less costs) for the life of the equipment, divided by the purchase price of equipment.

For company Financial Statements ROI has another accepted usage where returns are be broken down into annual returns instead of total returns.

For example lets assume you purchased Cointerra Terraminer IV equipment and delivery expected end-Feb.  You are likely to just break even financially on your equipment mining project.  This assumes a conservative Bitcoin price of $440 and a difficulty level of increase at 68% per month, equivalent to the average for the last 10 2-week difficulty level changes.

Within the project if Bitcoin price rose to $800 you would double your money, i.e. obtain a 100% Return on Investment, and if it falls to $100 you will lose most your money, and so you will be in a similar position to straightforward investing in Bitcoins.!

P.S. While writing this the BTC price passed $455.... $800 could be a feasible possibility outcome sooner than we think !

[bigb159]

Most familiarly horrible use on these forums: "It won't ROI." Yes, we've all posted them the wikipedia link to return-on-investment.

[MilesJohan]

Lets just assume ROI is break-even in BitcoinForum, everyone is saying you can't ROI means you can't break-even

[whitemage]

I dunno how much I am trolling here(and I didn't search the forums for a similar post), but...

ROI == Return on investment

- Is a term that implies indefinite nature, how much return do I get per X time period based upon the Y price I purchased it for. Normally expressed as a %
- (I buy shares in WizzbangCorp, they pay dividends of $1/year and their share price is $5, so my ROI is 20% per year.)

Break Even == BREAK EVEN!!!

- How long it takes to recoup your original investment. Which does relate to ROI, but it's not ROI!

-- What everyone really means when they talk about buying miner X/Y/Z and how long it takes until they Break Even.


(The aim of this post was to avoid me replying to a post that didn't have this as question (and "really trolling") and maybe mean others start to educate the rest on their misuse of terms. I can only hope.)

So what is my ROI if I break-even?

[cp1]

So what is my ROI if I break-even?

0

[-ck]

I keep saying a more useful term for people to learn is "post purchase rationalisation"

http://en.wikipedia.org/wiki/Post-purchase_rationalization

[abracadabra]

So what is my ROI if I break-even?

0

actually it's negative if you take into account opportunity cost.

[JoelKatz]

actually it's negative if you take into account opportunity cost.

Doubtful, unless you had an opportunity that would do better than holding Bitcoins, which is unlikely. I guess you lost the opportunity to sell Bitcoins earlier, but so long as Bitcoins maintain a long-term upward trend, that will also be worth almost nothing.

[MarketTime]

So what is my ROI if I break-even?

0

actually it's negative if you take into account opportunity cost.

Its positive cause you gain some knowledge out of it