S&P are now using the following formula:

where V

_{i}is the market value and E

_{i}is the earning of issue i, and PER denotes P/E ratio.

Siegel asserts that S&P should weight both market value(numerator) and earning(divisor) by market value, such as:

Siegel says that this weighting will alleviate the problem of overestimating the overall P/E ratio, because the huge loss of the company like AIG will be downplayed by its relatively small market value, in comparison with S&P formula .

However, when you transform S&P formula as follows, you can see that it is also a kind of weighted sum:

That is, individual P/E ratio is weighted by earning.

When you look at Seigel's formula, it can be re-written as follows:

That is, individual P/E ratio is weighted by the product of value and earning.

It can also transformed as follows:

Individual P/E ratio is weighted by the product of P/E and squared earning.

From these transformations, you can see that the meaning of Siegel's formula is much harder to grasp than S&P one.

For Siegel's purpose, maybe it's better to weight individual earning by market value, instead of by earning in S&P formula, as follows:

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