Consider the following keywords
You would like to bid each keyword so that you maximize orders subject to the constraint that the overall Cost Per Order (CPO) is less than $20. A lot of us would simply look at each keyword and bid them to a CPO at or higher than the average CPO. So we bid keyword 1 to position 1 (CPO of $20) and keyword 2 to position 2 (CPO of $20). In this scenario we would get 15 orders from keyword 1, 10 orders from keyword 2 for a total of 25 orders at a cost of $500 ($300+$200). The overall CPO is $500/25=$20. So it's good.
But what if we did the exact opposite? Here we would get 10 orders from keyword 1 at a CPO of $10 and 20 orders from keyword 2 at a CPO of $25 for a total of 30 orders at a cost of $600 ($100+$500). What is the CPO now? Its $600/30=$20. We got more orders for the same CPO despite exceeding the CPO target for keyword 2! Welcome to the portfolio theory of SEM. Like we said... It isn't obvious.
Learn more about the portfolio theory of SEM and several other cutting edge SEM concepts in our latest paper: Algorithms and Optimization
