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The Theory of Investment Value [Paperback]

by John Burr Williams
4.6 out of 5 stars  See all reviews (15 customer reviews)

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Book Description

June 1, 1997 087034126X 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.

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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 (15 customer reviews)
  • Amazon Best Sellers Rank: #113,194 in Books (See Top 100 in Books)

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Customer Reviews

4.6 out of 5 stars
4.6 out of 5 stars
Most Helpful Customer Reviews
135 of 135 people found the following review helpful
5.0 out of 5 stars Still relevant after sixty years August 11, 1998
By M. Amin
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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31 of 33 people found the following review helpful
3.0 out of 5 stars An important work 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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28 of 30 people found the following review helpful
5.0 out of 5 stars Definately worth reading! May 17, 2005
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. 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
5.0 out of 5 stars Awesome book on classical valuation January 4, 2007
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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Most Recent Customer Reviews
3.0 out of 5 stars The Theory of Investment
A little more dated than I expected but the basics re market theory and investment basics are presentede in a clear manner. Read more
Published 1 month ago by stuart brown
5.0 out of 5 stars heavy duty
This guy knew his stuff ... in a deep way. At first, it seemed intimidating, jumping right into calculus formulae; but, it's readable, if dry, and the pace moved along. Read more
Published 9 months ago by Discoveror
5.0 out of 5 stars Outstanding!
Improved upon my value investing prowess. Must read if you want to improve your skills. Highly recommended work for the novice investor.
Published 13 months ago by D. Dean
5.0 out of 5 stars Very good book
It's a very clear guide for establishing the value of a company. It requires certain mathematical knowledge. It must be studied as a text book
Published 15 months ago by NMM
5.0 out of 5 stars Simply an Investment Classic
What a classic! No wonder Warren Buffett was influenced by it. This book teaches investors how to value stocks with the discounted cash flow model. Read more
Published on August 14, 2009 by Mariusz Skonieczny
5.0 out of 5 stars amazing work of finance and economics
Warren Buffet mentioned this as one of the most important works in investment and finance. It is an amazing read though one needs to go very slow. Read more
Published on February 16, 2009 by RUPESH PAUL
4.0 out of 5 stars A masterpiece - but not for everyone.
This book laid the foundation of business valuation for making investment decisions using the technique we now call Discounted Cash Flow. Read more
Published on October 17, 2008 by Ratatosk
5.0 out of 5 stars Incredible Classic
A fantastic accomplishment. All investors should study this book to learn the real value of a stock.
Published on May 15, 2008 by John Williams
5.0 out of 5 stars EXCELLENT
This is an excellent copy of an investment classic. VERY happy with the seller, the shipping and packaging were superb. Thanks again!
Published on January 7, 2008 by S. Blake Leblanc
4.0 out of 5 stars Heavy Stuff
Helpful book for a Fundamental Value Investor since it layed the groundwork on DCF methodology (1934). Read more
Published on September 21, 2005 by B. Marr
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