Monday, April 13, 2009

Jeremy Siegel responds...(on S&P's P/E ratios)

Jeremy Siegel recently caused a lot of fuss by arguing that S&P mis-reports earnings in the 500 index. I posted a comment on his idea here. Then S&P responded. At the time I agreed with Siegel and I disagreed with S&P (I still do).

Finally Siegel himself has re-entered the fray and confirms what I thought he was saying. Furthermore, he has enlisted Robert Schiller who also supports his arguments.

No doubt, S&P will still argue that Siegel's arguments are without merit, but I think that this issue is closed. Not value-weighting historical earnings of companies that loose huge amounts of money causes the stated earnings of the S&P 500 to be too low. The argument made by S&P that the index is just like a multi-division company is just plain stupid.