Dec 02 2007
John Burr Williams quote
On my recent trip I reread one of my favorite books, it was written in 1938 - The theory of Investment Value, which was amongst the first to articulate the theory of Discounted Cash Flow (DCF) based valuation, and in particular, dividend based valuation
John Burr Williams believed that the fixation with the short-term, led to periods of gross over and undervaluation in stocks, which, in turn, led to booms and busts in the economy.
His book was really a wake-up call to the investment elite of his time to offer them a theory of investment value that would encourage more long-term investing and less speculation. Most people would not admit that they were speculators, but when they were asked to explain their buy and sell decisions, it was clear that they were not appraising the intrinsic value of companies, but betting that they knew something that the market did not.
Here’s my favorite quote form it - read it carefully
A cow for her milk
A hen for her eggs
And a stock, by heck
for her dividends.
An orchard for fruit
Bees for their honey.
And stocks, besides
For their dividends
Rational - A man doesn’t realize what evil he’s capable of rendering with his bare hands until he reaches day six of “The Twelve Days of Christmas” as sung by Muppets.
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