I want to discuss this topic of heuristics. Some helpful, some unhelpful. I'm borrowing a lot of this from Charlie Munger and Nick Sleep. Two investors that I have tried to applied the philosophy they have in investing.
So heuristics are shortcuts for investors. In my opinion they prevent investors from doing the good and all important homework that is necessary to make a educated investment. Obviously the price to earnings, which is the expectations set of wall street that is what is represented. Often that is a misconception, but those expectations are usually of the short term minded, and often based of the intrinsic value are a bargain compared to the long term. Just think of the price to earnings of costco in 1994 when Charlie became a board member, I estimate the price to earnings was between the mid 20s to low 30s. That's is irrelevant because today it is 50. Now I know that it is not the case everytime, but people often look at the p/e and already decide if it is investable which is a psychological misjudgment.
A second example is capital efficiency returns. Although this heuristic is very helpful, one has to understand the background behind it. Because accounting does not include investments that increase intangible value, this becomes a crucial blindside for company's that have few tangible assets. Let us take Coca-Cola as a great example. If you studied the history of this great company, they made the intentional decision to be asset light, which made there focus producing syrup, and marketing sugared water. Hence the investments in marketing which would increase brand value but not increase ROIC or other such metrics. So while brand value has become one of the most recognizable the ROIC would not reflect this. Today because of acquisitions they make, the ROIC is what has kept the ROIC pretty high.
Overall while heuristics are helpful, you have to understand the crude limitations that accounting bears fruit with. In reality marketing can be a investment, but in your books it's a expense and that leads to lower ROIC. Understanding the entire business is crucial.