The Theory of Investment Value (Contrary Opinion Library) [Paperback]

John Burr Williams (Author)

Book Description

Publication Date: June 1, 1997 | ISBN-10: 087034126X | ISBN-13: 978-0870341267

This book was first printed in 1938, having been written as a Ph.D. thesis at Harvard in 1937. Our good friend, Peter Bernstein mentioned this book several times in his excellent Capital Ideas which was published in 1992. Why the book is interesting today is that it still is important and the most authoritative work on how to value financial assets. As Peter says: "Williams combined original theoretical concepts with enlightening and entertaining commentary based on his own experiences in the rough-and-tumble world of investment." Williams' discovery was to project an estimate that offers intrinsic value and it is called the 'Dividend Discount Model' which is still used today by professional investors on the institutional side of markets. Appendix, Tables, Index.

Product Details

• Paperback: 613 pages
• Publisher: Fraser Publishing Co. (June 1, 1997)
• Language: English
• ISBN-10: 087034126X
• ISBN-13: 978-0870341267
• Product Dimensions: 8.3 x 5.5 x 1.5 inches
• Shipping Weight: 2 pounds (View shipping rates and policies)
• Average Customer Review: 4.6 out of 5 stars  See all reviews (11 customer reviews)
• Amazon Best Sellers Rank: #45,688 in Books (See Top 100 in Books)

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126 of 126 people found the following review helpful:

5.0 out of 5 stars Still relevant after sixty years, August 11, 1998

By 

M. Amin (Manchester, Greater Manchester United Kingdom) - See all my reviews
(REAL NAME)   

This review is from: The Theory of Investment Value (Contrary Opinion Library) (Paperback)

This book is still in print sixty years after it was written, despite never having been updated or revised. That testifies to its classic status, in a field, financial analysis, which generally changes rapidly.

The author defines the "Investment Value" of a stock to be the net present value of all its future dividends. This definition provides a measure of intrinsic value which is independent of stock market prices, enabling the investor to assess whether the current market price is high or low compared with the Investment Value of the stock.

A calculation of Investment Value inevitably requires estimation of factors such as future growth of earnings, the proportion of earnings that can be paid as dividends, and an appropriate discounting rate. The author does not shy away from making such estimates, and the book includes practical case studies for three current (in 1938) valuations, General Motors, United States Steel and Phoenix Insurance, as well as thr! ee retrospectives to 1930, AT&T, Consolidated Gas (Con Ed) and American and Foreign Power.

While the facts of these valuations are long ago, the methods are still applicable today. A great self discipline for investors would be to always prepare their own estimate of Investment Value before buying any stock.

The book is accessible to any general reader. A casual glance will show some apparently off putting algebra. This should be manageable to anyone who has finished high school, and arises only because in 1938 the author did not have the benefit of computer spreadsheets for doing growth projections and discounting calculations. The reader should find it straightforward to apply the author's methods with modern computing resources.

While the above comments imply a book that is worthy but dull, the book is in fact anything but dull. The author writes grippingly well, illustrated by this extract:

"Concerning [a stock's] true worth, every man will cherish his o! wn opinion; as to what price really is right, time only wil! l tell. Time will not give its answer all at once, though, but only slowly, word by word, as the years go by; nor will the last word be spoken till the corporation shall have closed its books for ever and ever. Those who bought their stock long ago will know their answer in the main by now, but those who buy now will hear theirs only in the future. "

I would commend this book to every investor or student of finance.

22 of 23 people found the following review helpful:

5.0 out of 5 stars Definately worth reading!, May 17, 2005

By 

JP - See all my reviews

This review is from: The Theory of Investment Value (Contrary Opinion Library) (Paperback)

This truly is a fantastic book on stock and bond investing. It's one of the best investing books I've ever read. Toss out your mass-market Peter Lynch books, this one really gets down to what determines how much a stock is worth, which most ordinary investors probably don't understand at all. It shows you how to calculate intrinsic value and is full of math. Trust me, I'm no mathematician but I still loved it.

This is one of the books that influenced Warren Buffett. However, I would recommend this over Benjamin Graham's Security Analysis or Philip Fisher's Common Stocks and Uncommon Profits, which also influenced Buffett. There's a reason why "The Theory of Investment Value" is still in print almost seven decades after it was first published.

Amazon.com lists the length of this book as 240 pages, but it is really 564 pages long.

21 of 23 people found the following review helpful:

3.0 out of 5 stars An important work, June 14, 2006

By 

Befragt (Midwest USA) - See all my reviews
(VINE VOICE)   

Amazon Verified Purchase

This review is from: The Theory of Investment Value (Contrary Opinion Library) (Paperback)

The Theory of Investment Value is clearly an important work, as reflected in Benjamin Graham's citations to it and the prevalence of the dividend discount model in valuing stocks. The theories expounded in this book are of particular import to those to seek to by stock at a value less than the intrinsic value of a company as they determine it to be.

The book itself initially appears intimidating, as there are a lot of mathematical equations, but in reality, the math is nothing more than simple algebra, mostly different models related to computing dividend values going forward.

I found the book to be an interesting read, but it is highly theoretical in nature. The central theme of the book is that stocks are worth the present value of their dividends, paid in perpetuity. It does not discuss earnings manipulation, effect of dilution, securities with superior or inferior claim to payment, etc. Moreover, as Graham points out in Security Analysis, companies that have a high return on invested capital would be well advised to reinvest their profits, while less successful companies would be better off paying higher dividends (relative to book value). This would, of course, tend to make the practical application Williams' theory somewhat complicated, insofar as it makes computing future dividends more difficult.

Readers looking for a more practical guide to valuing stocks might be better served reading Securities Analysis by Benjamin Graham, or any number of more "practical" books related to stock market analysis, particularly as those analyzing financial statements to determine the intrinsic value of a company. Some readers might also find "The Aggressive Conservative Investor" by Marty Whitman and Martin Shubik to be a good read for a competing view, since the authors of that book take the position that, with respect to non-controlling shareholders, a company's stock is worth the net after-tax cash that they expect to realize in the future, whether from dividends, liquidating events, etc. However, if a reader is truly interested in obtaining an understand of how dividends affect stock prices, the book is a worthy read.