The Most Profitable Contrarian Investment Strategies for 2010 and Beyond
The 2010 Investment U Conference is underway! And even if you couldn't make it, now you can "bring home" more than 30 breakthrough presentations from the conference... Order the Deluxe MP3/Video Library for $99 to listen and view on your computer, or the Premier CD plus MP3/Video Library for $149 to listen to and view anywhere.



Jeremy Siegel: S&P’s Earnings Wrong

Investment U Research Team

Jeremy Siegel, professor of finance at the Wharton School at the University of Pennsylvania and market guru, published an opinion piece in The Wall Street Journal on how the S&P 500 had misstated its earnings.

A simple example can illustrate S&P’s error. Suppose on a given day the only price changes in the S&P 500 are that the largest stock, Exxon-Mobil, rose 10% in price and the smallest stock, Jones Apparel Group, fell 10%. Would S&P report that the S&P 500 was unchanged that day? Of course not. Exxon-Mobil has a market weight of over 5% in the S&P 500, while the weight of Jones Apparel is less than .04%, so that the return on Exxon-Mobil is weighted 1,381 times the return on Jones Apparel. In fact, a 10% rise in Exxon-Mobil’s price would boost the S&P 500 by 4.64 index points, while the same fall in Jones Apparel would have no impact since the change is far less than the one-hundredth of one point to which the index is routinely rounded.

Yet when S&P calculates earnings, these market weights are ignored. If, for example, Exxon-Mobil earned $10 billion while Jones Apparel lost $10 billion, S&P would simply add these earnings together to compute the aggregate earnings of its index, ignoring the vast discrepancy in the relative weights on these firms. Although the average investor holds 1,381 times as much stock in Exxon-Mobil as in Jones Apparel, S&P would say that that portfolio has no earnings and hence an “infinite” P/E ratio. These incorrect calculations are producing an extraordinarily low reported level of earnings, high P/E ratios, and the reported fourth-quarter “loss.”

While the current P/E ratio of the S&P 500 is listed at 12.5, it should be closer to 9.4. He gives good reasons why investors shouldn’t fool themselves into thinking the market is still overvalued. And when a guru like Siegel believes that the market is undervalued, we should all take notice.

To read his full commentary, go to the full Wall Street Journal article.

More on this topic (What's this?)
S&P 500 Posts Worst Yearly Start On Record
S&P 500 Rally Could be Short-Lived
S&P 500: Day by day analysis.
Read more on Exxon Mobil, Net Income, Clothing at Wikinvest
Related Investment U Articles:



McAfee Secure sites help keep you safe from identity theft, credit card fraud, spyware, spam, viruses and online scams
Sign Up now and receive this Free report:

The Three Best Stocks to Own in 2010.




The Company Set to Dominate a $60 Billion-a-Year Market

$60 billion is spent on cancer treatment in the U.S. - each year. And one company is poised to receive the lion's share of it.

The medical director at the Alta Bates Comprehensive Cancer Center says, "...possibly a third of our cancer patient population will soon be undergoing this [company's] treatment."

Another doctor at the University of Texas MD Anderson Cancer Center says he intends to treat over 1,000 patients a year with this technology.

Here's how you can claim your stake in the company before this cash infusion sends shares soaring.

Share Investment U:
  • email
  • Print
  • Digg
  • Sphinn
  • del.icio.us
  • Facebook
  • Google Bookmarks
  • Propeller
  • StumbleUpon
  • Technorati
  • Yahoo! Buzz
  • Reddit
  • NewsVine
  • SphereIt
  • Twitter

Comments

**By submitting your comment you agree to adhere to our Comment Policy and Privacy Policy.

Check out our selection of daily Investment Research:

IU Blackboard IU Archives



Protect your purchasing power – invest in these foreign currencies and precious metals.

Recent Articles



Search Investment U





Platinum Services

Oxford Club
The Oxford Club
is an exclusive, global network of investors, who collectively participate in the pursuit of prosperity and wealth. The Club is renowned for its market-beating, tried-and-true investment principles.


White Cap The White Cap Report exclusively identifies companies, White Caps, which - by being among the earliest to gain traction - have secured dominant positions within untapped, billion-dollar markets.

The Most Comprehensive Investing Course Available to the Public







What Readers Are Saying…

"Always enjoy what you have to say, and learn something new (and useful) almost every time. Thanks again for your outstanding work." Jeff K.

"I just want to say a quick thank you to Alexander Green for not only his sage advise, but his reassuring words of encouragement that we all need right now." Bryan W.