Name: The theory of investment value
ISBN: 9781638233206

The theory of investment value

This book was written as his dissertation paper during his Ph.D at Harvard. Williams sent The Theory of Investment Value for publication before he had won faculty approval for his doctorate. The work discusses Williams' general theory, as well as providing over 20 specific mathematical models; it also contains a second section devoted to case studies. Various publishers refused the work since it contained algebraic symbols, and Harvard University Press published The Theory of Investment Value in 1938, only after Williams had agreed to pay part of the printing cost. Williams was among the first to challenge the "casino" view that economists held of financial markets and asset pricing—where prices are determined largely by expectations and counter-expectations of capital gains [6] (see Keynesian beauty contest). He argued that financial markets are, instead, "markets", properly speaking, and that prices should therefore reflect an asset's intrinsic value.[7] (Theory of Investment Value opens with: "Separate and distinct things not to be confused, as every thoughtful investor knows, are real worth and market price...".) Developing this idea, Williams proposed that the value of an asset should be calculated using “evaluation by the rule of present worth”. Thus, for a common stock, the intrinsic, long-term worth is the present value of its future net cash flows—in the form of dividend distributions and selling price.

What Hacker News says

XichekolasJul 2008

I've read The Intelligent Investor and The Theory of Investment Value and Common Stocks and Uncommon Profits. All three were quite good.

To summarize the first two (very roughly): The market isn't perfect and there are a lot of undervalued companies that are great. You have to find these companies at a significant discount to what they are really worth, and then you have to be patient enough for everyone else to realize their error.

The third would IMHO be more geared towards someone that wanted to be a professional. Fisher talks extensively about ways to interview management/competitors/clients for information not found on a balance sheet, and prefers to look for new technology companies with huge potential upsides. He admits himself that most of his success was due to a half dozen huge wins in his entire life, and he tries to document how to find such wins.

Realize that with Buffet's reading list you are going to end up wanting to invest like Buffet/Graham/Fisher, which means patience and a lot of due diligence on what you buy.

If you don't have 100 hours a week to research/interview prospects, Buffet and Graham would both recommend that you set a good allocation and buy index funds. Fisher would probably tell you the same, as he makes it very clear that he never buys a single stock without knowing the company like it was his own (which often included knowing the management on a first name basis).

And remember, the key to allocation-based investing is rebalancing, so you periodically lock in gains and don't get overly concentrated in one thing over time.

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tim333May 2018

Perhaps, though:

> In The Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the equation for value, which we condense here: The value of any stock, bond or business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset.

- Buffett in http://www.berkshirehathaway.com/letters/1992.html

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