The Economist ~ Notes on margins & returns

Day 1,981, 11:17 • Published in Romania United Kingdom • by Spite313


Dear friends,


Today I’m writing about an altogether less serious topic than the last article. I get asked perhaps three or four times a week a question, or at least variations on the same question. “How do I get rich?”, or “how do I invest this money I have accumulated?” The truth is that there is never a simple or uniform answer to these questions, and for this reason my responses are usually frustratingly vague for the young players who ask. In my lifetime I’ve built two fortunes, the first in V1 and the second in V2. Technically the second one grew out of the same trunk as jamesw’s since we were business partners. I’m not going to go into exact measures of worth here, but needless to say there aren’t many countries with as much money anymore.


The basis of all of this comes from two things; patience and spreadsheets. Patience is the greatest virtue any future financial player can hope to have, because as sure as rain falls from the sky and Estonia fights Finland, you will get screwed over in the markets. I have forgotten how many setbacks I’ve had, how many losses. The important thing to remember is that you don’t take risks without making mistakes or just losing out on an unpredictable event. To illustrate this, let me give you a couple of examples.


Firstly of bad luck. In this case there are many, but I’ll give you a clear one. When Q7 was introduced I had about 15,000 Q6 guns on my profile. Their value halved overnight. I can’t remember exact values, but I think that I lost about a hundred thousand currency on that one. Obviously the money was worth less then, but a loss is a loss. Actually I still have around ten thousand of them- I just couldn’t bring myself to cut my loss though I should have sold them long since.


Good luck events are few and far between. When V2 came along we had a lot of price fluctuations. Currency was still unlinked, so prices were in local currency which had to be chopped and changed. It was lucky that at the time I had 200 orgs under my control and a fairly large supply of gold. Some of the houses I bought in that time for around 2 gold sold for 20 each, and some of the weapons I bought for 0.2g sold for 0.5-1 each. Between myself and james we made a colossal amount of money for the time which really was the catalyst for me switching from a mostly MM based commercial base to a mostly company based one.


Anyway- enough history. The point is that by being patient and accepting you’ll make mistakes you get somewhere. Nobody gets rich in a week, month or even a year. True wealth comes from being in the right place at the right time, with the right equipment and the right contacts to make it happen. To get that you just need to patiently invest and reinvest.



Matzanesia was the perfect example of patience


Which brings me neatly to my second great virtue- spreadsheets. Some of you who use companies probably remember the old company management websites that used to kick round in V1. They calculated everything for you, but basically they were just fancy looking spreadsheets. I think I spend more time on Google Drive than on eRepublik to be honest, and the reason for that is simple: margins and returns. Those two very basic financial indicators are the basis of your future career as the richest man/woman in the world (trust me).


Put simply, a margin is the difference between your outgoing expenditure and your incoming revenue. A return is how much profit a company will bring in for you, and more specifically a return on investment (RoI) is how long it takes for you to make the money back which you invested in buying the company. There are a few quick points I want to make before I go into more detail on these two.


1. Buying a company is not like buying a gold pack or a gun or food or whatever. You do not lose money when you buy a company. You invest it. A company costs 8500cc, ergo it is worth 8500cc. If you turn 8500 in capital into 8500 in assets, it is still 8500, and that price is fixed by the game. At worst, you can get rid of it and get half your money back. The difference is that 8500 in money form is nothing more than a temptation to spend, whereas 8500 in asset form makes money each day.

2. Everything is relative. If your company makes 10cc a day it might not seem like much. If you have 100 of them, you make 1000cc a day. That’s a lot. The only difference is time and patience. These days currency is worth a lot more, so really you shouldn’t be buying currency based companies, but the point stands.


Back now to margins. Margins are as I said the difference between income and output. It can be taken in two ways. Firstly on an isolated level, a manufacturing company generally does hire workers and does generally use a great deal of WRM. Whether you make it yourself or buy it from the market is irrelevent. You are using WRM, and it has intrinsic value itself. So the margin is the difference between the sell price of the WRM used to make a gun, added to the labour cost, and the actual amount you are selling the gun for.

P - (RM + L) = M

Price [after tax] - (Raw Material + Labour) = Margin


Simple as that. So if for example you are currently selling Q7 on the market in Romania it would be:

5.795 - (6 + 0.7142...) = -0.92 (rounded)

So basically by selling on the market at the minute you are losing 0.92 currency for every gun you sell. If you make the guns yourself (no workers), you only lose about 0.2cc per gun. If you make the WRM yourself, then you should sell it directly. If you’re buying it from someone else, stop. You’re losing about half a gold a day. This is spreadsheets; this is simple stuff.


So why do people sell at these prices? Sometimes it’s from ignorance, or just lack of spreadsheets. But surely anyone with half a brain can see that 200 * 0.03 = 6, even if the complexity of taxes and labour costs eludes them. The truth is, if you make your own WRM you will know it’s a lot easier to sell Q7 guns than WRM, precisely because anyone buying WRM is making a loss. So the true value of WRM is actually lower, though not so low as to fall below 0.03. People without vast amounts of storage or the Q7 companies needed to convert their WRM often sell their WRM directly to Q7 owners at a reduced price- say 0.025 cc by private arrangement. If you plug that amount into the formula, it looks a little better.


Secondly, on a holistic level, margins are the differences between your total income and your total expenditure. Ultimately the goal of every player is to get to the point where they can max train, tank occasionally and feel rich without having to spend real money. You can achieve this with companies even now, though it requires sacrifice as well as patience. If you spend all your tiny income on fighting and training to begin with, you’re going to end up a pauper your whole life. I’m not telling you what decisions to make, but if you want to be rich, remember to calculate not just your business outcomes but all outcomes. That tank you’re using to fight with is worth money. You’re not firing bullets at the enemy, you’re firing currency at them. And you don’t get rich by spending money.





On to returns. Returns are the amount of money returned from your investment, as I said. So if you’re making 10cc a day profit in a company, that is your return. Your return on investment is the value of the company divided by this amount. So if you bought a saltpetre mine for 8500cc, and made 10cc a day, it would return it’s investment in 850 days. At the minute a rubber factory returns it’s investment in about 550 days if you have perfect bonuses the whole time. But as I said above, this isn’t really “getting your money back”, since your money still exists in the company. It’s more like “doubling your money”.


The secret of returns is that growth feeds growth. Each of us play a game where we’re rewarded monetarily constantly in the form of medals, XP rankups and so on. If you buy gold you get cash that way too. The game admins obviously want you to spend gold on special items to focus on the military module. Anyone looking at my profile will see they’ve been mostly unsuccessful convincing me of that. I’m not telling all of you that you must do this, I’m telling you this is what I would do. You take all of that gold, especially the glut of it you get at the beginning of the game when they’re trying to hook you in, and you invest it safely where it can’t be spent. And you keep doing that. Not for the first week or month, but for the first year. It’s a massive investment, a massive specialisation. But after that year you are pretty much free to do as you like. I know people a year old who have done just that and are worth more than a million currency already.


When you put your rate of return into your spreadsheet you’ll find what seems like tiny numbers. But the truth is that for the price of a few extra clicks a day, your money breeds. It’s as simple as that. I tend to click around 230-240 times a day, depending on how lazy I am (usually I sleep at least six hours) and level up every couple of weeks or so. All those 1-2-3-4 percent returns add up once they reach those sort of numbers. When I was building up to this (most of them are obviously raw materials companies) I had a spreadsheet which calculated how long it would take to reach my goal. Even with favourable markets and a sound base already, it took me about five months from start to finish. Patience and spreadsheets!


If you want to talk to me about the article, please do drop me a query or PM ingame. I’m always happy to moan about the economy module with a fellow player. But make sure you set up your spreadsheet first! Good hunting


Iain




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PPs. Hi Romania!