ROI vs Real Money

[Maurader1]

Just read a thread in Small Stakes that was quite interesting. It argued that ROI, or implied odds, is not as important as the absolute dollar amount that we want to win.

The example that was given is this:

If you need to invest 100 to win 50, with ROI 50%, or invest 210 to win 70, ROI 30%, which one would you pick?

Earlier today I had come to the conclusion that as an investor we want to maximize the return/risk ratio...but after reading this thread and argument, I am not so sure anymore.

[LearnedfromTV]

[ QUOTE ]
Just read a thread in Small Stakes that was quite interesting. It argued that ROI, or implied odds, is not as important as the absolute dollar amount that we want to win.

The example that was given is this:

If you need to invest 100 to win 50, with ROI 50%, or invest 210 to win 70, ROI 30%, which one would you pick?

Earlier today I had come to the conclusion that as an investor we want to maximize the return/risk ratio...but after reading this thread and argument, I am not so sure anymore.

[/ QUOTE ]

The problem with this is that if you have $200, you can invest $100 twice and get the 50 twice. In poker, your time is an opportunity cost, because you have to actively participate to earn your return, so the measure that matters more than ROI is hourly rate. In investing, this isn't the case.

P.S. This has nothing to do with implied odds.

[Sniper]

Other factors you need to consider... Time, Bankroll, Expectation of success, # of opportunites.

Assuming equal bankrolls, expectation of success, and unlimited opportunities...

You would make twice as many of the smaller bets per time period...
2 x 100 to win 50 = +$100
1 x 210 to win 70 = +$70

[Dazarath]

What the above posters said is correct. In general, if you can invest $100 and get 50% ROI vs investing $210 and getting 33% ROI, you can just choose to invest $210 at 50% and get $105 in profit. In poker, this doesn't necessarily work.

For example, let's say I can take a $100 to a 2/4 table and earn on average $25 per 3 hours. That doesn't mean I can take $1000 to a 20/40 table (or $1000 to 10x 2/4 tables) and earn $250 in those 3 hours. I may only earn $150 on average. Obviously, the correct choice is for me to play at 20/40 (assuming I'm bankrolled for it).

[Maurader1]

Perhaps what I'm saying is, would you rather invest more money, to earn more money, or invest less money, and earn less, money but at a higher ROI?

[Sniper]

Like I said in my first reply, it depends on the other factors...

If you only have $210... what are you doing with the other $110, when you make the $100 investment?

[Dazarath]

Assuming nothing else matters, then the absolute amount of money earned matters more. I'd rather invest $1000 at 10% ROI than invest $1 at 1000% ROI. This falls apart though, if the liquidity of your money has value to you. In your example, if you only own $210 total, and having $110 in cash benefits you in terms of convenience.. well, then it *may* be better to go with the $50 for $100 deal. But in reality, the situation you described is kind of farfetched. Could you show me an example where I could invest $100 at 50% ROI but not $210? And if that example exists, could you show me one where I can $100 at 50% ROI, but then I cannot invest the additional $110?