When investors look to find the next big opportunity to invest their capital, they often focus on what’s popular at the time or having the best price action in the so-called “popularity contest” that both Warren Buffett and Keynes referred to in their work. They also mentioned that the market eventually becomes a weighing machine, turning into facts and away from these popularity measures.
Speaking of Warren Buffett, there is one significant weight he takes into account when choosing his next investment. Apart from the deep qualitative analysis of management and product quality, Warren Buffett likes to see a high return on invested capital (ROIC) rate accompanied by a relatively low valuation metric such as price-to-earnings (P/E) or a discount to book.
