The Theory of Investment Value
| John Burr Williams | |
|---|---|
| Born | 1900 |
| Died | September 15, 1989 (aged 88) Weston, Massachusetts |
| Institution |
University of Wisconsin–Madison Private portfolio management |
| Field | Finance |
| Alma mater | Harvard University |
| Influences | Joseph Schumpeter |
| Influenced | Harry Markowitz |
| Contributions |
Intrinsic value Fundamental analysis of stock prices Discounted cash flow valuation Gordon model |
John Burr Williams (November 27, 1900 – September 15, 1989) was a 20th-century economist, recognized as a founder and developer of fundamental analysis, and for his pioneering analysis of stock prices as reflecting their “intrinsic value.” He is best known for his 1938 text The Theory of Investment Value, based on his Ph.D. thesis, which was amongst the first to articulate the theory of Discounted Cash Flow (DCF) based valuation, and in particular, dividend based valuation.
Williams studied mathematics and chemistry at Harvard University, and enrolled at Harvard Business School in 1923. After graduating, he worked as a security analyst, where he realised that "how to estimate the fair value was a puzzle indeed... To be a good investment analyst, one needs to be an expert economist also." In 1932 he enrolled at Harvard for a Ph.D. in economics, with the hopes of learning what had caused the Wall Street Crash of 1929 and the subsequent economic depression of the 1930s. For his thesis, Joseph Schumpeter suggested the question of the intrinsic value of a , for which Williams' personal experience and background would serve him in good stead. He received his doctorate in 1940.
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. The work has been influential since its publication; Mark Rubinstein describes it as an "insufficiently appreciated classic".
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