Market Discussions

Towards a Positive Argument for Investing
About a week ago I was engaged in a discussion with Elise Darkstar about the viability of MD investing. Amongst a range of claims thrown out was the charge that investing in MD is simply not worthwhile since even if it is possible to make isk returns from investing are not going to be high enough to make it a worthwhile pursuit when compared to other activities. I'm going to try here to make a start towards taking up Elise's challenge to provide a properly formatted argument in favour of investing (I'll respond to the various negative arguments in another). Many of the details in the following posts are somewhat sketchy and need sharpening up. If anyone can help with more precise figures or additional pieces of data that would be greatly appreciated.

The first thing I'll do is attempt to provide a list of activities that can reasonably be thought of as comparable in terms of time and effort expenditure. I'll then insert some figures for likely returns, although many of these will be place-holders and I don't vouch for the accuracy of them in all cases. Finally, I'll offer some comments on reasonable investment strategies and the likely returns these would yield so we have something to compare to the alternatives (I may not have time to post these today as I'm working from a net-cafe while my wife is shopping ). All the data is subject to revision and I doubt we will ever be able to get beyond approximations given the difficulty involved in compiling truly accurate data for all cases. But hopefully this will provide a starting point for discussion.

Alternative Activities According to Minimal Time and Effort Expenditure
The first thing we need to do, I think, is to identify all (or as many as possible) productive uses for isk that can be compared to investing in terms of the time and effort required – that is, the alternatives that the investment market is in competition with. Let's take a sample investor, to begin with, and ask what options he or she has. For the sake of argument I'll take someone who only has 20 minutes a day to spend on financial business in eve, either because this is the total game time they have available or because this is the time they have left after using the rest of their game time for other pursuits. Even if the other pursuits are financially based someone might still have an excess of isk and a little time left over to use it but be unable to fit the excess into any of their other business plans (a position I have been in quite a few times). Now, in recent months I have had probably 20 minutes a day but in a fractured distribution such that I've had a few five minute slots to fill but for the sake of this argument lets not restrict the time distribution in this way, saying instead that it can be distributed in any number of possible ways, including a single 20 minute slot (the fractured distribution will, I think, make investing more attractive but we may as well examine what other things can be done with this time as a single period as well). I don't think 20mins per day is unnecessarilly restrictive as I'm confident that there are a good few people who only want to spend this much time on financial matters and if there is such a group and investing is a viable isk making method for them then this will be enough, I think, to show the viability of investing for at least some people even if it encounters stiffer opposition in the alternatives that would arise with double this time, triple this time, or more.

On the basis of this time allowance we can rule out running incursions and for me at least all the other PvE options due to the issue of psychological ramping. It may well be that other people can happily log on and mission for 20 mins and have that as their sole eve activity. However, for at least some people that will not be the case. I would also want to rule out mining on the same grounds.

So, having ruled out the PvE options,what others do we have? I'll leave aside the question of entry barriers for the moment. Please feel free to add in any others that I have missed.


1) Running a fairly small number of trade orders on a once daily update or an even smaller number updating twice daily.
2) A small T1 production operation, with the mats purchased from sell orders should be possible as long as the logistics distances and the materials volumes are not too high.
3) A smaller T2 invention/production or T3 RE/production operation (smaller because of the additional steps involved in the production process).
4) A T2 BPO production operation of virtually any size.
5) Some amount of contract trading (someone else will have to fill in the details as to how large since I have no experience on this front).
6) A research/copy farm of quite a large size.
7) MD investing.
8) Private investing/loans.
9) Short term commodity speculation – i.e. trading on the regular cycles.
10) Long term speculation.
11) Cap ship construction (combat or industrial).
12) Supercap construction.

Now, some of these have other factors to consider. Let's assume that MD investing can be reasonably carried out through a diversified strategy with a very low risk of taking an overall loss (as per the strategy of investing equal amounts in every offer that launches, or some improved version of this strategy). And let's further assume that our sample financier wants a strategy that is not in the medium to high risk range. On these grounds we can rule out supercap construction and long term speculation as not really being comparable. Both offer much greater rewards but both come with significant risks of considerable losses.

Effort
One thing worth noting before proceeding is that whilst it may be possible to pursue any of these activities in the time available each day, some of them will have much higher effort burdens than others in terms of the number of discrete tasks to manage and/or implement. At the highest level of effort will be high-tech invention and production with a whole gamut of tasks including buying mats, running the logistics, queuing the orders and keeping abreast of mat and finished product market movements. This could be run on a daily basis for maximum efficiency or in tranches that will lower the monthly returns but make any individual day less hectic. Cap ship construction will have different effort profiles on different days with a lot of tasks involved in getting each cycle going but then lots of low effort days while the cycles complete. Various degrees of efficiency can be achieved here as well. It will, thus be quite tricky to give a single figure for monthly returns on these kinds of activity.

Somewhere in the middle will be the trade options, with a fairly standard set of daily tasks that will all be largely similar (check markets, update orders), whilst at the lower end of the effort spectrum will be T2 BPO production, investing and research/copy (ordered from least to most overall effort on my estimate). So in some cases an activity might be reasonably selected over another available activity on the grounds of effort involved even if the more intense activity offers better returns.


Returns
This will, in many ways, be the critical criterion for determining the viability of MD investing for our example profile. However, as I have suggested above other factors such as tolerance for certain areas of the game and relative intensity of effort may modify the attractiveness of investing. A further consideration is capital absorption insofar as one might already have a full set of trade orders and/or a maxed out industrial/research base (either absolutely or by tolerance) but still have some cash left. In this case MD investing would only be competing with private investing or possibly a focussed industrial base expansion into ultra low effort T2 BPO production. However, before going on to debate the situations wherein one might take up investing even as a sub-optimal option, let's see if we can get some figures on the table for returns.

In most cases the figures I offer will be merely place-holders based on my own limited knowledge and/or second hand data or even guestimates (guesses informed by at least some limited data). In a few cases I will have to leave the returns completely blank due to a total lack of knowledge, first- or second-hand (contract trading will be an example). I will also try to offer a place-holding figure for capital absorption in each case and possibly a spread of returns where appropriate. For instance, a research copy farm will be able to generate considerably higher monthly returns on 2bil worth of BPOs than it will on 200bil.

My personal knowledge deficit for some of these activities is more than likely mirrored by almost everyone else's except those who have been around the longest and this factor is also worth considering. One might make a perfectly rational choice to invest rather than doing something more optimal simply because one does not know that there are better options available. Hopefully as this thread develops it will also serve as a resource for people to help them choose where to put their isk.


Universally available activities

1) Running a fairly small number of trade orders on a once daily update or an even smaller number updating twice daily.
Returns: I'll have to appeal for help on this one as I have only ever traded on a fast turnover 0.01 war basis.

2) A small T1 production operation, with the mats purchased from sell orders should be possible as long as the logistics distances and the materials volumes are not too high.
Capital Absorption and returns: Based loosely on my memory of battleship construction, the placeholding figure here will be something like 2.5%-3.9% per month scaling inversely with a capital absorption of between 2.63 and 29.6bil (the extreme upper ends of returns and capital absorption being generously unrealistic, I think – the upper end of capital absorption is based on producing and selling 70 BS per day and using courier contracts for all the logistics).

3) MD investing.
TO BE DETERMINED

4) Cap ship construction (industrial).
Capital absorption and returns: I'm going to lift figures from the BSAC Orca/Freighter building offering at the start of the year and say 3-4% on 50bil. If anyone in the business knows better please let me know. Also, if this return would take a greater time investment also let me know.

5) A small research/copy farm.
My own experience in this field combined with the, now slightly old, data from the One Stop offering suggest 3-4% returns on a low effort seems like a reasonable figure. For a small farm capital absorption could still be quite high (Titan prints) but with a considerably lower returns.

I don't think I have time to post a lot more today so I'll just offer a few figures that may give an idea of why I think a properly worked out strategy will provide comparable returns to the 2-4% range that appears above. As far as I can tell, the total cost of scams on MD in the 12 month period Oct. 2009-Sept. 2010 (inclusive) was 519.37bil, distributed over 10 scams:

1. Stevea/Troy Industries - 2bil

2. Lui Kai - 11.37bil

3. Liberty Eternal - 2bil
(LE came back to the game and paid this off but since this happened outside the sample period I'm leaving it in as a scam/default)

4. ITSAssassin – 5bil

5. ShipRep/Katiana Swann – 3bil
(Katiana has recently returned but, again, this is outside the sample period)

6. Commercant Epique – 2bil

7. Yih - 4bil

8. Curzon Dax - 50bil

9. T4U/BB - c. 400bil

10. Bad Bobby Refinance – 40bil (?)

It will be immediately apparent that the vast majority of these losses come from BB and Curzon Dax. Any rational strategy able to exclude theses two scams would only have had to deal with a scam volume over this twelve month period of 29.37bil.

Against this my incomplete figures for returns in this period show interest, dividends and share value increases totalling between 330bil and 440bil (the lower figure excludes BSAC returns and a couple of others that I'm not sure about whilst the higher figure pegs the uncertain returns at 3% and guesses BSAC's starting capital for the period at 300bil).

The question, then, is whether basic strategies could avoid most of the volume of scams without also ruling out most of the offerings that paid out, or at least leaving enough offerings for investors to sink a decent chunk of cash into. I'll leave the details of possible strategies for another day (although if anyone wants to start the ball rolling on this, please do – just bear in mind that reverse engineering strategies specifically to exclude BB will not be a good idea as such strategies may have very significant weaknesses when applied to data from any other year). Given that nearly all offering pay out 3% returns or more it does seem likely to me that any strategies that are successful in this regard will probably provide returns comparable to the other activities noted above. But whether or not this will actually be borne out by the data will have to wait.

Raw, I'd like a 20b loan - in the name of science, to help you build some more empirical data.

(sorry Cyniac, I couldn't resist)

Was gonna write something like "This forums needs a Like button" before i actually found it.
I suspected that for quite long, that general investing is isk-positive, i mean.
You're counting the "smallish" scams, though? I tought some 0.2-1b defaults happened in that period.

Tutskii - 30 bil?

Someone who IS OBVIOUSLY NOT GAY asked in the scc if you where having posting lessons from VV .Dunno who it was though ....

Bitter in a gay way? .... look just saying

i didn't quite get the aim of this 100%, but there are a few markets that i know well research and BPO's being the major 1. i also t2 manufacture and T1 manufacture. if you want finer figures on the profits i'll be happy to contribute.


also your definately missing scams, but the MD old forums are so full of stuff it will be hard to find a majority of them. though im not sure what that matters compared to the BB scam.


Also your projected returns seem very low, on a majority of available activities you've stated a return of 2-4%, which imo is very low and not even worth getting out of bed for.

you could buy a research alt for 1-1.5 bil and earn that % a month from datacores alone without doing anything at all.

In regards to the return rate on small-scale market trading (updating once per day), I will normally pull between 25% and 35% monthly profit overall. The sheer number of trades is small, but the value is decently large (I average 3-8% per trade profit).

Also, EXCELLENT post.