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📉 Simple ROI (Return on Investment)

⬅️ Back to Performance Metrics Overview

💡 What is it?

The Simple ROI measures the absolute percentage return generated by an investment relative to its cost, without considering the time elapsed or cash flows in a complex manner.

🧮 Formula

\[ ROI = \frac{\text{Current Value}}{\text{Weighted Average Cost (WAC)}} - 1 \]

🎯 When to use it

  • To evaluate a single position (e.g., "How much am I up on my Apple shares?").
  • When you want a quick, intuitive snapshot of total unadjusted profit.

⚠️ The Flaw: Cash Flow Dilution

Simple ROI breaks down when you make subsequent investments in the same asset. If you buy a stock and it goes up +50%, your ROI is +50%. If you then invest 10x more capital into the same stock and the price doesn't move, your absolute gain remains the same, but your new massive capital base will instantly dilute your ROI down to maybe +5%. It looks like your performance collapsed, even though the market hasn't moved.