There is an interesting debate over my column on Monday, which looked at evidence for distorted profits in the US. In brief, there is a long-term discrepancy between the earnings yield on the S&P 500 (the inverse of the price/earnings ratio), and the long-term actual real return to investors (what they receive in dividends and in capital appreciation on an annualised basis). The two ought to be very similar. But in fact, earnings yield runs at about 1.5 percentage points per year higher.
The column highlighted research by the great Andrew Smithers who can be seen here discussing his idea with Martin Sandbu, who is doing a great job on the Authers’ Note video:
Mr Smithers’ explanation for the discrepancy, which does not make him popular, is that earnings are systematically overstated – and that the manipulation has intensified now that the modern bonus culture gives executives a much greater incentive to overstate profits in the short term. However, there is another possible explanation. Read more
James Mackintosh is the Financial Times' Investment Editor, writing and presenting the daily Short View column and video. In 16 years at the FT his posts have included comment editor, motor industry editor and hedge funds correspondent, as well as spells in the Parliamentary lobby and Paris. He was the first reporter hired for FT.com, joining two weeks before it launched.
John Authers is the Financial Times' Senior Investment Columnist, writing the Saturday Long View and a regular Monday column. In a 22-year career at the FT, his previous posts have included global head of the Lex column, investment editor, US markets editor, Mexico City bureau chief and US banking correspondent. His latest book is The Fearful Rise of Markets. 