The percentage gain or loss on an investment relative to its cost — total return (including dividends and price appreciation) divided by the amount invested.
Deeper Explanation
ROI is the most basic measure of investment performance, but its simplicity conceals important nuances. It ignores time — a 50% ROI over 10 years is far less impressive than the same return over 2 years. Annualised return (CAGR) is always more informative for comparison across different holding periods. It also ignores risk — two investments with identical ROIs but very different volatility profiles are not equivalent. Buffett focuses on ROIC (return on invested capital) as the relevant measure for businesses, not just the portfolio-level ROI.
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