Below are asset weightings for each position; our beta/non-beta balances; source of return themes; gross, short and net long percentages; and other relevant currently held position data. To the far right are long-term (3 years) strategy views that express core holdings and tactical trades. We are targeting gross exposure of 112% down from our current 147%.

Endnote

1. Charles Minter and Marty Weiner, What's the Real P/E Ratio?, Barron's May 26, 2008.

Operating earnings exclude write-offs, while reported earnings include write-offs. That is the only difference, but it's a difference that is getting much more important. As recently as the early 1990s, operating and reported earnings were virtually the same. But then we entered the greatest financial mania of all time, and the earnings numbers diverged. There were so many write-offs by companies making unwise investments and then undoing them that operating earnings grew much faster than reported earnings. The write-offs that had been sporadic and unusual became common for many companies. Using operating earnings is now like playing in a golf tournament that doesn't count any penalty strokes for hitting the ball into a water hazard or out of bounds. Look at the numbers. Reported earnings for the S&P 500 for 2007 were just over $66. The operating earnings for 2007 were $84.54. The estimated numbers for 2008 are about $69 for reported earnings and about $90 for operating earnings.

John Serrapere works on research and consulting projects through Arrow Insights. He welcomes comments and suggestions for future columns at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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