Reading your ROI
ROI turns a raw dollar gain into a percentage so you can compare investments of different sizes on equal footing. A $500 profit means more on a $1,000 investment (50%) than on a $50,000 one (1%).
Why annualized return helps
A 50% total return sounds impressive, but earning it over 3 years is very different from earning it in one year. The annualized figure compounds the gain across the holding period so you can compare opportunities fairly regardless of how long each one took.