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Calculating R.O.I.

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Calculating R.O.I. - Wed Oct 26, 2011, 10:12 AM
(#1)
19honu62's Avatar
Since: Jul 2010
Posts: 1,770
Okay Posse,

I am putting this thread out there to make you think and open your minds a bit! Some of us know how to calculate return on investment ( ROI ) others dont and just let the software and sites do it for us!
For me being a financial planner it is simple! Or is it?

A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.

The return on investment formula:

roi = gain from investment - cost of investment / cost of investment

or put another way

If I start with $25 and after 1 yr I have $35 then

$35 - $25 = $10 profit

$10 / $25 = .4 or as a percentage 40%

I'm sure you would agree 40% in one yr is good right! Now the issue I run into in poker is that people disagree about the cost of the investment. You see in poker some argue that the total buyins should be used to calculate the Cost of Investment where others simple take the amount you are willing to invest as that cost.

For instance, if I have a starting bankroll of $100 and I play 1000 games in a year at $1 I have invested $1000 right! But i started with $100 and took my winnings and re-invested them to be able to play those 1000 games. So do I use the $1000 or the $100? Both are absolutely correct but here is the method i prefer.

$100 is all I am being given to start and at the end of one yr if I have made 40% that means i have $140. Does it matter that i played 1 game or 1000 games to earn it?

This excercise simply points out that the numbers can be made to do many things and if you understand this then you are better informed!

In the end, I have made $40 on $100 which is 40%

Gidee Up!
 
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Wed Oct 26, 2011, 10:53 AM
(#2)
Darkman61's Avatar
Since: Jan 2010
Posts: 2,225
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Quote:
Originally Posted by 19honu62 View Post
I'm sure you would agree 40% in one yr is good right! - No. Not unless it was generated for you by others.

Does it matter that i played 1 game or 1000 games to earn it? - Yes. For the above mentioned reason.
I'd call this a DSARTPYOTB (Desperately seeking a reason to pat yourself on the back) calculation. I have no idea why you would encourage people to use this method

I can see some merit in this if it were a sum that you'd used to back another player. But for assessing your own profitability it's misleading at best and I think most would dismiss it as a bare faced lie.
 
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Wed Oct 26, 2011, 01:12 PM
(#3)
topthecat's Avatar
Since: Nov 2007
Posts: 1,962
JC, and I don't mean Julius Caesar but DMan has it right here

A 40% return on investment (including your precious time) is a pretty poor return; anyone looking to grow a bankroll is looking to increase it per sum, not over the period of a year!

I hate to disagree Honu but in this case Darkman has it spot on

TC
 
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Wed Oct 26, 2011, 02:03 PM
(#4)
EdinFreeMan's Avatar
Since: Feb 2010
Posts: 4,540
As with all statistical measurements, they are only valid if you understand not only how to calculate them, but what they can and cannot tell you and what other information they require to put them in context and evaluate them fully.

Chris is correct that this is a standard method of calculation in financial services. If I give my broker $x to invest and after a year he gives me back $x + $y my ROI is as Chris states profit divided by investment as a percentage or y/x%. The same goes if I take my $x to the tables and come away with $x+$y, whether that is in one game, 100 or 10,000 that I play during the year.

Now in this case, as I added the context of 'after 1 year' this is also the annual return on investment, another standard measure in financial services.

In poker, if you use the total buy ins as your investment you are doing something similar to annualising your investment return, but instead of using time period as the measure you are using what is essentially a function of the number of games combined with your buy ins, unless you only play 1 buy in level (such as for Chris's Cowboy's Challenge) where the number of games played could also be used to give you a similar statistic.

All of these are valid as long as you know what they can or cannot tell you. The question is what do you most need to know? Which makes most sense to you? Of course you are not limited to one measure so long as you know how to interpret the outcomes for all and any you use.

The other important factor is that when you compare your performance over time you do so in a standardised way, using the same basis, so that you can see improvement or change by comparing like with like. I do this on a monthly basis, and/or on a number of games at each level/format, but am careful to avoid including extras such as monies earned from PSO Prizes or FPP games where my investment is zero in monetary terms. However I can add these back in for an overall view of how I am 'earning' from the game.

At micro stakes and for these bankroll building style challenges Chris's method is simple and effective. I cannot quite see why it is seen as the devils work. The alternative method is always available if it makes more sense to you.

Perhaps we need to have different names for each of the methods, like we do for interest (simple/compound/APR) but for that we would need a regulatory authority for poker.

Heck, aren't we getting one of those soon?



Good luck all

Ed from Edinburgh - EdinFreeMan
 
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Wed Oct 26, 2011, 02:32 PM
(#5)
TheLangolier's Avatar
Since: Jun 2010
Posts: 13,487
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Let's be clear on what we're talking about here. The ROI honu states is more like a static investment ROI. It's like saying I'm going to buy $100 of stock xyz, let it sit, and see how I do at the end of the year. When the year ends my stock is worth $140 so my ROI on it was 40%.

This is not the traditional poker ROI calculation. Traditional poker ROI calculations for mtt/sng's are done on a per game basis, and for a very important reason. If you take a $100 roll and turn it into $140 playing $1 sng's, does it matter if it takes 100 games to do it, 1000 games, or 10,000 games? You bet, it matters significantly as poker is not a stock xyz investment that we plunk down, and come back to later to see how we did, there is a significant time investment differential between 100 games and 10,000 games, and equally important there is a significant skill differential... the player who achieves this br growth in 100 games is likely much more skilled than the player who takes 10,000 games to do it. Meaning they will likely move up in levels faster, and they are less likely to suffer extended losing streaks. They will still have downswings, all poker players do, but theirs will tend to be shorter and less intense, significantly lowering their risk of ruin.

So when honu says as an example I start with a $100 bankroll (my investment) and ended some time period with $140 for a $40 profit and an ROI of 40% on my poker playing for said period of time, that is an accurate statement but it is not a correct way for a player to judge their skill as it doesn't speak to skill at all. When you hear poker players saying their ROI in a certain game is X%, it is on a per game basis. In honu's example, if he had concluded "I have an ROI in $1 games of 40%" that would clearly be false (this is not what I read honu as saying, but I think this is where the confusion comes in, because it is in fact the way ROI is referred to in poker).

An ROI of 40% in $1 games, over 1000 games, would return a $400 profit (and thus the bankroll at the completion of the 1000 games would be at $500 not $140). The per game ROI in Chris's example is 4%. If someone achieved the $140 mark in 100 games, that would be a 40% ROI. The player that takes 10,000 games to get there has an ROI of .4% in $1 games.

Dave
 
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Wed Oct 26, 2011, 02:43 PM
(#6)
TheLangolier's Avatar
Since: Jun 2010
Posts: 13,487
(Head Trainer)
Quote:
Originally Posted by EdinFreeMan View Post
All of these are valid as long as you know what they can or cannot tell you.
Hi Ed,

You beat me to the post, yes the ROI calc Chris suggested in the standard financial calc for static investments, but it is NOT the standard for poker because the 2 things poker players need most from ROI is an indication of their skill relative to the player pool in the games they play, and a predictor of profitability for future games. As you stated in the quote above, Chris's calculation can not tell you either of these things. Only a per game ROI can do this. I think this is where darkman's issue is, when this point isn't clarified it can be misleading players who don't yet understand ROI.

Dave

Last edited by TheLangolier; Wed Oct 26, 2011 at 02:45 PM..
 
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Wed Oct 26, 2011, 03:03 PM
(#7)
JDean's Avatar
Since: Aug 2010
Posts: 3,145
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Chris's method is fine for calcing ROI on a single investment basis, or for judging your return after a pre-determined point.

Example:

If you play 1 x $100 game, you've "invested" $100 and can use his method.
You have used $100 in its entirety, you have "put it to work", in hopes of deriving a profit.

If you STAKE someone to play multiple games, you have also "invested" $100 in that single stake amount, and can use his method to calc your return on that investment.
Here again, by staking someone you have put $100 "to work" in hopes your HORSE returns a profit for you.

The issue which has led to the "dis-agreement" in this thread pops up when you view what $100 "means" for a poker player who is actually playing on his own money...

Simply the fact you HAVE $100 in an on line account does NOT mean you have "invested" that amount.
Your "investment" in the game of poker occurs only when you pay a BI.
Until a BI is paid, you have WORKING CAPITAL available for use, not an "investment made".

Consider...

If you have $100 available, and play 25 $1 BI MTTs, how can you say you've "invested" $100?
You've invested $25, and have $75 in un-tapped capital reserves for future investments.

To do a preliminary assessment of your ROI, and the effect that current ROI might have upon your potential to derived future profits from your play, you can only say you've actually "invested" $25 at this point.

The act of "investing" implies you have put your money "to work" in hopes of deriving profit. Since your play at at the $1 BI level after 25 events has given you no opportunity to put $75 of your available capital "to work", I think we can all agree you;ve only "invested" $25; win or lose in those first 25 events, you still have the option of spending the other $75 on something else.

I think we can all see this pretty clearly.

If you started with $100 in capital, and you play 10,000 $1 BI events, you did not "invest" $100 either.
This is where I think it gets trickier...

Cowboy's assertion seems to be "all I did was deposit $100, and I managed to run that out over 10,000 BI. That means I've only INVESTED $100, and should calc my ROI appropriately".

But look at it like this...

Each time you WIN money playing poker, you have a choice of what to do with that money.

You can either SPEND your winnings, or you can use that win amount to "re-invest" in MORE poker play.
You also have the option of spending the money you have as "working capital" and no longer "investing" in poker.

In order to reach 10,000 games at the 1 BI level, you MUST have made the choice at some point to "re-invest" winnings in poker play. The act of this "re-investment", when you had the option to STOP your investment and realize your profits, means you can no longer consider your "investment" to be just $100 once you have past the 100 $1 BI point. You must ADD IN all the additional re-invested amounts to derive your actual total investment amount.

If all you wish to do is factor your profitability as expressed as ROI in 100 game increments, then Cowboy's method is perfectly fine for that.

But a more "responsive" method for calculating ROI to use ROI as a method to track progress is to only count as "investment" the amounts you have used for BI. After that, it is a simple matter to determine your ROI at any point in your play.

Example:

You have $100 in start capital.
You play 99 $1 BI games
After those 99 games, you have $225 available upon which to play.

$225 - $100 (working capital to start) = $125 "profit"
99 x $1 = $99 "invested"

$125 / $99 = 1.2626

1.2626 / 100 = 126.26%

That is your periodic "ROI" for the $99 of your working capital you have invested into poker play.

Last edited by JDean; Wed Oct 26, 2011 at 04:12 PM..
 
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Wed Oct 26, 2011, 03:56 PM
(#8)
EdinFreeMan's Avatar
Since: Feb 2010
Posts: 4,540
You give your broker $100 - he decides the market is risky, keeps $99 in cash, invests $1 in penny shares that he has a tip on and they go through the roof. He keeps your cash resource (at zero interest zero risk) without ever touching it, and you continue to earn at some rate on your stock. When you cash out he gives you the full increased value of the penny shares + your $99. ROI is as per Chris calculation. In the financial world, often a zero ROI is better than the average.

So Chris has a valid method that works in both cases, but it is admittedly a purely financial method and I take on board all that Dave and JD say, it does not give you the same information. It does give you a method to compare your poker investment with your savings/stocks investments, or your investment in any other field. It is a standard measure across the investment field.

Having said that I do believe from what you both say that the traditional method gives an extra measure of skill for players. I have never looked at other players ROI to compare between them or with myself. I would be impressed by the figures I am sure but do not know what specific info I would gain about a player other than a general overall skill indicator. Yes this is potentially valuable information, but at the micro level I am not trying to look up players ROIs to try to get an extra skill read. Am I missing something?

What I do know is that I can use both methods to get useful information about my own performance over time. Chris's method is certainly useful as long as you understand what it represents, I have used the other method too for an earlier series of sitngoes and it also gave me useful information. It is not an either/or issue, it is horses for courses.

In both a game and a real world of incomplete information, this is extra information, it ain't some alternative bad ting, it more of the good stuff.



Good luck all

Ed from Edinburgh - EdinFreeMan
 
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Wed Oct 26, 2011, 04:12 PM
(#9)
!!!111Dan's Avatar
Since: Jul 2010
Posts: 3,290
As others point out, this defining of ROI is like everything in poker... IT DEPENDS!
It depends on what you're looking for from the information.

If you have a house worth 100,000 when you buy it, and at selling you get 150,000, then you have an ROI of 50%. If you're in America, you wake up and your roi is much less.

I'm not the first here to point out how this is not the traditional way to look at our ROI as players, but it is an important statistic in looking at it from the point of one who is investing in the game...should the staker be you or someone else.
If this long term view isn't profitable (may I add, after the tax-man) then we have to evaluate how and where we can improve.
As many people never deposit, or deposit very little, then grow nice bankrolls, you can view their long term investment ROI and even compare it to anything from real estate to stocks. ....
.....You're all positive ROI for your lifetime in poker,, right????

The traditional way of viewing poker players' roi by each buy in, is very helpful in analyzing which games to play by seeing where you get the best investment for your time and money spent.
An outside staker will also be interested in this statistic in viewing your "resume."
 
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Wed Oct 26, 2011, 04:24 PM
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hemetdennis's Avatar
Since: Oct 2010
Posts: 2,019
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WHY SHOULD WINNINGS FROM FPP'S NOT BE COUNTED ??

 
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Wed Oct 26, 2011, 04:41 PM
(#11)
EdinFreeMan's Avatar
Since: Feb 2010
Posts: 4,540
Quote:
Originally Posted by !!!111Dan View Post


.....You're all positive ROI for your lifetime in poker,, right????

I know for a fact I am - only in a minor way - but thats an aged recreational newbie - when I take into account the net opportunity costings I'm frankly way ahead.

earnings from poker + $xx.00
+ money saved on beer & women whilst at the tables = $x,xxx,xxx,xxx.00

like the Irishman said - I spent most of my fortune on women and alcohol - the rest of it I just wasted.



Ed from Edinburgh - EdinFreeMan
 
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Wed Oct 26, 2011, 05:07 PM
(#12)
MEVpaul's Avatar
Since: Jul 2011
Posts: 143
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Quote:
Originally Posted by EdinFreeMan View Post
I know for a fact I am - only in a minor way - but thats an aged recreational newbie - when I take into account the net opportunity costings I'm frankly way ahead.

earnings from poker + $xx.00
+ money saved on beer & women whilst at the tables = $x,xxx,xxx,xxx.00

like the Irishman said - I spent most of my fortune on women and alcohol - the rest of it I just wasted.



Ed from Edinburgh - EdinFreeMan

Lol i like your equation.
 
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Wed Oct 26, 2011, 05:26 PM
(#13)
EdinFreeMan's Avatar
Since: Feb 2010
Posts: 4,540
Quote:
Originally Posted by hemetdennis View Post
WHY SHOULD WINNINGS FROM FPP'S NOT BE COUNTED ??


They SHOULD be counted in an overall ROI using Chris's method for all poker earnings. I have seen graphs somewhere of the pros (might be SpaceGravy) where their earnings graph has two lines, one for money excluding bonuses (megasuperwhateverstellarstars extras you get for playing through enough big money cash VPPs etc) and one line that is much higher because it includes them, and at the supernovas level they get a real whack for them.

In my overall earnings on investment I would do the same- have a seperate line on my graph includng my FPP earnings, and PSO/UKIPT league prizes, stellar bonuses etc, where I don't have a specific investment cost because they are freerolls or FPP cost entries, or pure bonuses.

I would exclude earnings from FPP entry games, such as the 2FPP rebuy entry to $2.22 Saturday Splash MTT satellites from my 'MTT earnings and ROI ' because I do not have a cash value to put on the variable amount of FPPs I invest to try to get my $2.22 prize. It may be possible to track how much every FPP you earn actually cost, as a moving average, but I don't think it is worth the effort of doing. I do track how much I get for my FPPs on average from the results of those games so I can see what my FPP stack is potentially 'worth' in cash if I continue to perform at a similar level.

I eexclude prizes from PSO for instance, because if I am lucky enough to earn $zero or $20 or $2,000 in a month from the league, because they are free to enter, and because the result does not mean I have become a much better or worse player, although I will always be happier the higher that figure is.

Ed from Edinburgh - EdinFreeMan
 
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Wed Oct 26, 2011, 05:35 PM
(#14)
roomik17's Avatar
Since: Aug 2010
Posts: 4,556
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fpps should be calculated as rakeback
 
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Wed Oct 26, 2011, 05:48 PM
(#15)
hemetdennis's Avatar
Since: Oct 2010
Posts: 2,019
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Quote:
Originally Posted by roomik17 View Post
fpps should be calculated as rakeback
ONLY IF 30 PEOPLE SAY THEY SHOULD
OR IF ALL THE DONKS GET OUT OF THE WAY


 
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Wed Oct 26, 2011, 06:34 PM
(#16)
JDean's Avatar
Since: Aug 2010
Posts: 3,145
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Quote:
Originally Posted by EdinFreeMan View Post
You give your broker $100 - he decides the market is risky, keeps $99 in cash, invests $1 in penny shares that he has a tip on and they go through the roof. He keeps your cash resource (at zero interest zero risk) without ever touching it, and you continue to earn at some rate on your stock. When you cash out he gives you the full increased value of the penny shares + your $99. ROI is as per Chris calculation. In the financial world, often a zero ROI is better than the average.
I agree with your assessment here, this IS a possibility.

But I held at the beginning of my post, the act of "investing" your money was enacted when you ceded CONTROL over the decisions about whether or not that money was put to work to the stock broker.

This is why I contend Cowboy's method of calc'ing ROI is just fine if you STAKE someone else to play. By doing that you've put your entire $100 at work, and have given control over HOW that money is put to work to the Stakee.

Example:

You stake someone $100.
The 1st game they play, they book a profit.
Thereafter, they never dip into the initial $100 again.
At the end of the stake, the stakee has $200.

YOUR investment was the full $100 you sent as the stake, because when you "invested" that, you had no clue whether he would need more than 1 BI or not. This is just like giving a broker $100 to invest, and coming back later to see a profit. You've received a "return" on your $100 "investment".

BUT...

If you play yourself, or if you decide for yourself to put money into the market, only the money you actually USE can be counted as "invested". all other monies you have available are merely captial resources that are un-tapped.

Therefore when YOU are the one playing, and you are the one who decides whether or not to pay a BI to try making a profit, your money is only "invested" once it is paid out as a buy in.

AND...

No matter what the amount you start with, ADDITIONAL Buy in's invested in events above those paid for by your initial capital amount must be added to the total of the amount you are "investing", or else you end up with a skewed ROI. This is true because to have those additional BI you must make a profit on your initial investment; if you elect to re-invest those profits in more poker play rather than realizing your profits and spending them, you are increasing your overall investment amount.

See?
 
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ROI - Wed Oct 26, 2011, 07:09 PM
(#17)
Doug696's Avatar
Since: Feb 2011
Posts: 4
so when my holdem manager gives me an ROI thats a per game measurement, including the buyinns for each game?
for example as per the cowboys challenge: $0.25 s&g 45&90MANS
Games:101
ROI:63.2%
ITM:23.8
Winnings:$15.97

so does this mean i'm making 63.2% + the buyin each game? [on average]
 
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Wed Oct 26, 2011, 07:13 PM
(#18)
JDean's Avatar
Since: Aug 2010
Posts: 3,145
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Let's see...

101 games x 25c = $25.25 invested.

You have WON $15.97 more than what you have spent on your BI's.

15.97 / 25.25 = 63.247% ROI

Yup...that's what it means.

That means you can "expect" to receive, on average, 25c + 15.81c = 40.81c for every 25c event you play, provided you maintain that win rate.

Last edited by JDean; Wed Oct 26, 2011 at 07:16 PM..
 
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Wed Oct 26, 2011, 08:24 PM
(#19)
EdinFreeMan's Avatar
Since: Feb 2010
Posts: 4,540
This is my favourite thread ever so far in PSO, I am a sicko, but I aint presently in no condition to respond just the now - my question is - where is the instigator?

(Man up Honu - we can take em)

Otherwise I might have to start a thread on the epistemology of poker - thats gonna be a cooler.

[No sides were taken in this dispute - no Canadians were harmed - as I said before this is not a disagreement - its a debate - I agree with all this to relative amounts]

What was the original question Cowboy?

GoodyYup

 
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Wed Oct 26, 2011, 08:36 PM
(#20)
JWK24's Avatar
Since: Jun 2010
Posts: 24,809
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I've seen it calculated a number of ways, for different situations.

Some use total entry fees paid (per game added up), some use starting cash, some add in the extras, some don't.

If you want a true overall ROI, then you need to add in EVERYTHING..... the entry fees plus rake, for all games added up, your winnings (return from the tournies), PLUS the extras (convert the fpp's and bonuses to cash equivalent).
I haven't seen a site that adds in everything and if you want to do it, you'll need a computer program to track it (I've actually got a spreadsheet with every tourney and cash table I've been in over the years... buy-in, return, fpp, tourney number, date, etc.). If you don't have something to track everything with, it'll be tougher to calculate.
 

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