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The Theory of Investment Value

16 customer reviews
ISBN-13: 978-0870341267
ISBN-10: 087034126X
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The Theory of Investment Value + Common Stocks and Uncommon Profits and Other Writings + The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) (Collins Business Essentials)
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Product Details

  • Paperback: 613 pages
  • Publisher: Fraser Publishing Co. (June 1, 1997)
  • Language: English
  • ISBN-10: 087034126X
  • ISBN-13: 978-0870341267
  • Product Dimensions: 1.8 x 5.8 x 8.5 inches
  • Shipping Weight: 2 pounds (View shipping rates and policies)
  • Average Customer Review: 4.6 out of 5 stars  See all reviews (16 customer reviews)
  • Amazon Best Sellers Rank: #132,142 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

137 of 137 people found the following review helpful By M. Amin on August 11, 1998
Format: 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.
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32 of 34 people found the following review helpful By Befragt VINE VOICE on June 14, 2006
Format: Paperback Verified Purchase
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.
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29 of 32 people found the following review helpful By JP on May 17, 2005
Format: 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.
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11 of 11 people found the following review helpful By Robert Stephenson-padron on January 4, 2007
Format: Paperback
This is probably one of the oldest, if not the first, serious academic works on valuation. The coverage is highly theoretical compared to the more practical valuation books of today (dividends are used instead of free cash flow, continuous time is used instead of discrete time, and "cookie cutter" product cycle scenarios are presented instead of more complex business forecasting).

The real value of this dissertation-turned-book though is its general insights. Although Warren Buffett doesn't tout this book as often as Graham's "Intelligent Investor", you will find that he utilizes the insights from this book almost as frequently.

Robert Stephenson-Padron
MSc student (economics & finance)
University of Navarra, Spain
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