Return On Invested Capital

Are you an average investor?  I hope not. Like lemmings over the cliff, average investors seem to grab a tight hold onto anything that has been successful lately.  I cite several phenomenon as proof, the tulip bulb bubble in Holland in the 15th century, the 1929 stock market crash, the internet bubble of 2001, and finally the current real estate bubble – which is just now beginning to deflate.

Recently, I have heard a number of investors talking about the latest craze, investing based on ROI, (Return On Investment).  At various conferences and cocktail parties, in many conversations, I have overheard a simple description that this style of investing is the new “miracle”.  The only way to win, and . . . . gasp . . . . the style that Warren Buffett uses to make all of his money!  Please don’t follow the lemmings – they are wrong!

First the problem, ROI is a way to measure your return – you put in $100 and a year later you get back $10 and all of your principal, your return is 10%.  Fairly simple.  The problem is that this is not an investment style.  What these investors are really speaking about is ROIC – Return On Invested Capital.  ROI and ROIC are easy to confuse, but measure very different things.

The ROIC is a simple formula that measures how much money an investor (you) take out of an investment compared with how much capital is needed to provide the return.  It is a great measure of a company’s management team, and the company for that matter.  It shows how good the company is at taking an additional dollar and generating an incremental return for investors on that dollar.

----------Advertisement----------
Where Can You Turn $300 Into $1.3 Million Right Now?

Our own small-company specialist, Robert Morris, has found a way to 'sniff out' tiny penny stocks on the verge of a major breakout.  And the timing for this has never been better.

You see, the system takes advantage of an obscure SEC regulation that sends penny stock prices through the roof.

We've seen some stocks gain 852%... 5,450%... even 17,496% in no time flat.

Click here for the details...
-----------------------------------

•  Copper (+10% in the last 4 weeks)

Copper has risen steadily over the last 4 weeks, driven in part by the expectations of continued demand out of China.  Also contributing to the price rise was a recent 4 day strike at Freeport's Grasberg copper mine in Indonesia.  It ended after four days, but obviously threatened global copper supplies; prices of course rallied on this news.

 Print Page                                                   Bookmark Us