The Theory of Investment Value by John Burr Williams is a classic book on value investing that was first published in 1938. The book is still relevant today and has been updated several times since its original publication. The book provides a comprehensive analysis of the principles of value investing and how to apply them in practice.
The book’s plot centers around the concept of value investing, which is the idea that investors should focus on the intrinsic value of a company rather than its market price. Williams argues that the intrinsic value of a company can be calculated by estimating its future cash flows and discounting them back to the present. He also discusses the importance of margin of safety, which is the difference between the intrinsic value and the market price of a stock.
The setting of the book is the stock market, and the characters are investors and analysts who are trying to make sense of the market. The conflict is the tension between market prices and intrinsic values, as well as the difficulty of accurately estimating future cash flows.
The main themes of the book are value investing, financial analysis, and the importance of discipline and patience in investing. Williams’ writing style is clear and concise, with a focus on practical advice and real-world examples.
One of the things I enjoyed about the book was how Williams breaks down complex financial concepts into simple and easy-to-understand terms. I also appreciated his emphasis on the importance of discipline and patience in investing, as well as his emphasis on the importance of understanding the underlying fundamentals of a company.
Overall, I would highly recommend The Theory of Investment Value to anyone interested in value investing or financial analysis. The book provides a solid foundation for understanding the principles of value investing and how to apply them in practice.
10 key takeaways from the book:
1. The intrinsic value of a company can be calculated by estimating its future cash flows and discounting them back to the present.
2. Margin of safety is the difference between the intrinsic value and the market price of a stock.
3. Value investing is about focusing on the underlying fundamentals of a company rather than its market price.
4. Patience and discipline are crucial for successful investing.
5. Financial analysis is key to understanding the intrinsic value of a company.
6. The stock market is not always rational and can be influenced by emotions and speculation.
7. Diversification is important for managing risk.
8. The best time to buy a stock is when it is undervalued.
9. The best time to sell a stock is when

The Theory of Investment Value, written by John Burr Williams, is a classic book on financial theory and investment analysis. The book presents a comprehensive framework for valuing stocks and bonds based on their expected future cash flows. Williams argues that the true value of an investment is the present value of all future cash flows it is expected to generate, discounted at an appropriate rate of return. He also discusses various factors that can affect investment value, such as inflation, risk, and market efficiency. The book is considered a seminal work in the field of finance and has been influential in shaping modern investment theory.

The book “The Theory of Investment Value” by John Burr Williams is divided into three main sections:
1. Fundamental Theory of Investment Value: This section covers the basic concepts of investment value, including the time value of money, the relationship between risk and return, and the importance of dividends. It also discusses the various methods of valuation, such as discounted cash flow analysis and the use of earnings multiples.
2. Applications of Investment Value: This section applies the concepts from the first section to various investment scenarios, including stocks, bonds, and real estate. It also covers the impact of inflation on investment value and the role of speculation in the market.
3. Investment Policy: The final section of the book focuses on investment policy and strategy. It covers topics such as portfolio management, diversification, and the importance of a long-term perspective. It also discusses the role of the investor in the market and the importance of maintaining a disciplined approach to investing.
Overall, the book provides a comprehensive framework for understanding investment value and making informed investment decisions.

Chapter 1: Introduction
In this chapter, Williams explains the purpose and scope of the book, which is to provide a theory of investment value. He also discusses the importance of understanding the concept of investment value and how it differs from market price.
Chapter 2: The Concept of Investment Value
In this chapter, Williams defines investment value and explains how it is determined. He argues that investment value is based on the present value of future cash flows, and that it is influenced by a variety of factors, including interest rates, inflation, and risk.
Chapter 3: The Influence of the Business Cycle on Investment Value
In this chapter, Williams discusses how the business cycle can affect investment value. He argues that during periods of economic expansion, investment values tend to increase, while during periods of contraction, they tend to decrease.
Chapter 4: The Influence of Interest Rates on Investment Value
In this chapter, Williams examines the relationship between interest rates and investment value. He argues that as interest rates increase, investment values tend to decrease, while as interest rates decrease, investment values tend to increase.
Chapter 5: The Influence of Inflation on Investment Value
In this chapter, Williams discusses how inflation can affect investment value. He argues that as inflation increases, investment values tend to decrease, while as inflation decreases, investment values tend to increase.
Chapter 6: The Influence of Risk on Investment Value
In this chapter, Williams examines how risk can affect investment value. He argues that as risk increases, investment values tend to decrease, while as risk decreases, investment values tend to increase.
Chapter 7: The Relation of Investment Value to Market Price
In this chapter, Williams discusses the relationship between investment value and market price. He argues that while market price may deviate from investment value in the short term, over the long term, market price tends to converge with investment value.
Chapter 8: The Fluctuations of the Stock Market
In this chapter, Williams examines the fluctuations of the stock market and argues that they are largely driven by changes in investment value. He also discusses the role of speculation in the stock market.
Chapter 9: The Theory of Common Stock Investment
In this chapter, Williams applies his theory of investment value to common stock investment. He argues that the value of a common stock is based on the present value of its future dividends, and that investors should focus on the long-term potential of a company rather than short-term fluctuations in market price.
Chapter 10

1. “The value of any investment is the present worth of its future cash flows.”
2. “The stock market is not a way to get rich quickly. It is a way to get rich slowly.”
3. “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Rationality is essential.”
4. “The market is a pendulum that forever swings between unsustainable optimism and unjustified pessimism. The intelligent investor is a realist who sells to optimists and buys from pessimists.”
5. “The investor’s chief problem – and even his worst enemy – is likely to be himself.”
6. “The stock market is filled with individuals who know the price of everything, but the value of nothing.”
7. “The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage.”
8. “The time to buy stocks is when the blood is running in the streets.”
9. “The intelligent investor should recognize that market panics can create great prices for good companies and good prices for great companies.”
10. “The stock market is a device for transferring money from the impatient to the patient.”

Chapter 1: Introduction
– The value of an asset is determined by its future cash flows
– The value of a share of stock is the present value of its expected future dividends
Chapter 2: The Dividend Discount Formula
– The dividend discount formula calculates the present value of a stock’s future dividends
– The formula can be adjusted for growth in dividends
Chapter 3: The Influence of the Future on Present Values
– The value of an asset is influenced by its future cash flows and the uncertainty of those cash flows
– The further into the future the cash flows are, the less influence they have on present value
Chapter 4: The Weighted Average Cost of Capital
– The weighted average cost of capital is the average cost of the various sources of financing a company uses
– It is used to discount the future cash flows of a company to determine its value
Chapter 5: The Relation of Investment Value to Market Price
– Investment value is the intrinsic value of a stock based on its expected future cash flows
– Market price is the price at which a stock is currently trading
– The goal of investing is to find stocks with investment value that is higher than the market price
Chapter 6: The Theory of Comparative Valuation
– Comparative valuation compares the price of one stock to another stock in the same industry or market
– It can be used to identify undervalued or overvalued stocks
Chapter 7: The Theory of Common Stocks as Residual Ownership Interests in Corporations
– Common stocks represent residual ownership in a company after all other claims have been satisfied
– The value of common stocks is based on the expected future cash flows of the company
Chapter 8: The Theory of Growth
– The value of a company is influenced by its growth rate
– The dividend discount formula can be adjusted for growth to determine the value of a growing company
Chapter 9: The Empirical Evidence on Investment Value
– The empirical evidence supports the theory of investment value
– Stocks with high investment value tend to outperform stocks with low investment value over the long term
Chapter 10: Conclusions
– The theory of investment value provides a framework for valuing stocks based on their expected future cash flows
– Investors can use this framework to identify undervalued stocks and achieve long-term investment success.

The Theory of Investment Value by John Burr Williams provides practical applications and actionable steps for investors to determine the intrinsic value of a stock. Williams suggests that the intrinsic value of a stock is equal to the present value of all future dividends that the investor will receive.
To calculate the intrinsic value, Williams recommends using a discounted cash flow (DCF) model, which involves estimating the future cash flows of the company and discounting them to their present value using a required rate of return. This allows investors to determine whether a stock is undervalued or overvalued based on its current market price.
Williams also emphasizes the importance of analyzing a company’s financial statements and understanding its competitive position in the industry. By conducting a thorough analysis, investors can identify potential risks and opportunities and make informed investment decisions.
Overall, the practical applications and actionable steps suggested by Williams in The Theory of Investment Value provide a valuable framework for investors to evaluate stocks and make informed investment decisions.

One example from the book that supports the main ideas is Williams’ discussion of the concept of intrinsic value. He argues that the intrinsic value of a stock is based on the present value of all future dividends that the stock will pay out over its lifetime. Williams uses the example of a company that is expected to pay out $1 per share in dividends each year for the next 10 years. He calculates the intrinsic value of a share of this company’s stock as the present value of those future dividends, discounted at an appropriate rate of return.
Another example from the book is Williams’ discussion of the importance of earnings in determining a company’s value. He argues that a company’s earnings are a key determinant of its future dividend payments, and therefore its intrinsic value. Williams uses the example of a company that has consistently earned $2 per share over the past several years, and is expected to continue earning that amount in the future. He argues that this company’s stock is likely to be worth more than a similar company that has inconsistent or declining earnings.
Overall, The Theory of Investment Value provides a detailed and rigorous framework for analyzing the value of stocks and other investments. Williams’ emphasis on intrinsic value and earnings as key determinants of value has remained influential in the field of finance, and his ideas continue to be studied and applied by investors today.

In The Theory of Investment Value, John Burr Williams presents the concept of intrinsic value as the true worth of an investment, based on its future cash flows. He argues that investors should focus on the long-term potential of an investment, rather than short-term market fluctuations. Williams also emphasizes the importance of considering the risk associated with an investment and adjusting the discount rate accordingly. Overall, the book provides a solid framework for valuing investments and making informed investment decisions.
Key Insights:
– Intrinsic value is the true worth of an investment based on its future cash flows.
– Long-term potential should be the focus of investment decisions, rather than short-term market fluctuations.
– Risk should be considered when valuing an investment, and the discount rate should be adjusted accordingly.

The Theory of Investment Value, written by John Burr Williams, is a seminal work in the field of finance and investment. Published in 1938, the book presents a comprehensive analysis of the principles of investment and the factors that determine the value of securities.
Williams’ writing style is both concise and engaging, making the complex concepts of finance accessible to readers of all levels. He uses clear and straightforward language to explain the concepts of intrinsic value, dividend policy, and the relationship between risk and return.
One of the key themes of the book is the importance of understanding the fundamental value of an investment, rather than relying on market trends or speculation. Williams argues that a thorough analysis of a company’s financial statements and future prospects is essential to making informed investment decisions.
Overall, The Theory of Investment Value remains a timeless classic in the field of finance, and its concise and engaging writing style continues to make it accessible to readers today.

Overall, The Theory of Investment Value by John Burr Williams is a must-read for anyone interested in understanding the fundamental principles of investing. The book provides a comprehensive and detailed analysis of the concept of investment value and its significance in determining the true worth of a company’s stock.
Williams’ approach to valuation is grounded in a rigorous and analytical framework that emphasizes the importance of cash flows and the time value of money. His insights into the relationship between dividends, earnings, and stock prices are still relevant and valuable today.
While the book may be challenging for readers without a strong background in finance or accounting, its clear and concise explanations make it accessible to anyone willing to put in the effort. Moreover, the book’s timeless principles and practical advice make it a valuable resource for investors of all levels.
In conclusion, The Theory of Investment Value is a classic work that deserves its place in the canon of investment literature. It is a must-read for serious investors who want to understand the underlying principles of value investing and how to apply them in practice.

The Theory of Investment Value by John Burr Williams
The Theory of Investment Value” by John Burr Williams, published in 1938, is a foundational book in the field of finance and investment analysis. Through the narrative of the book, Williams explores key concepts and principles that form the basis of modern investment theory.
The book begins by addressing the fundamental question: What is the true value of an investment? Williams argues that an investment’s true worth is determined by its intrinsic value, which is the present value of all expected future cash flows generated by the investment. He contends that this intrinsic value should be the guiding principle for investors when making investment decisions.
To illustrate this concept, Williams introduces the idea of discounting future cash flows to their present value. He emphasizes the importance of choosing an appropriate discount rate to account for the time value of money and risk associated with the investment. This approach is a precursor to the discounted cash flow (DCF) analysis widely used in finance today.
A central component of Williams’ theory is the Dividend Discount Model (DDM), which values a stock based on the present value of its expected future dividends. He discusses how this model can be applied to determine the intrinsic value of a common stock.
Throughout the book, Williams stresses the distinction between market price and intrinsic value. He acknowledges that market prices can be influenced by various factors, including market psychology and short-term fluctuations, which may lead to deviations from intrinsic value. However, he argues that over the long term, market prices tend to converge with intrinsic values.
Williams also introduces the concept of a “margin of safety.” He advises investors to only purchase a security when its market price is significantly below its estimated intrinsic value. This margin of safety provides a buffer against potential losses and is a key principle for conservative investing.
The book concludes with Williams advocating for a rational and analytical approach to investment, based on a deep understanding of financial principles and a focus on long-term fundamentals. He encourages investors to avoid speculative behaviors and instead embrace a patient and disciplined investment strategy.
In summary, “The Theory of Investment Value” by John Burr Williams is a foundational work that revolutionized how investors think about valuing investments. Through its narrative, the book introduces the concept of intrinsic value, discounted cash flow analysis, the Dividend Discount Model, and the importance of a margin of safety, all of which continue to shape modern investment theory and practice.
Summary of each chapter
Chapter 1: Introduction: In Chapter 1, Williams introduces the fundamental question of the book: What is the true investment value of an asset? He posits that understanding this concept is crucial for investors and that the true value of an investment is based on its intrinsic value, which is determined by the present value of all expected future cash flows. Williams lays the groundwork for the book’s exploration of this concept.
Chapter 2: The Concept of Investment Value: Chapter 2 delves deeper into the concept of investment value. Williams emphasizes that an investment’s value is not solely based on its current market price but is instead derived from the cash flows it is expected to generate over time. He introduces the concept of discounting these future cash flows to their present value, highlighting the importance of selecting an appropriate discount rate.
Chapter 3: The Valuation of Fixed-income Obligations In this chapter, Williams focuses on the valuation of fixed-income securities, such as bonds. He introduces the concept of the yield rate, which is the discount rate used to calculate the present value of future cash flows from bonds, including interest payments and principal repayment. Williams explains how changes in interest rates affect bond prices inversely, emphasizing the principle that as interest rates rise, bond prices fall, and vice versa.
Chapter 4: The Function of Dividends Chapter 4 introduces the concept of dividends and their role in determining the value of common stocks. Williams argues that common stocks derive their value primarily from the dividends they pay to shareholders. He introduces the Dividend Discount Model (DDM), which values a stock based on the present value of its expected future dividends. Williams explains that this model provides a rational way to assess the intrinsic value of common stocks.
Chapter 5: The Influence of the Stock Market In Chapter 5, Williams discusses the role of the stock market in determining the prices of common stocks. He acknowledges that market prices often fluctuate due to factors like investor sentiment and speculation, and these fluctuations can cause deviations from intrinsic values in the short term. However, he argues that over the long term, market prices tend to converge with intrinsic values as rational investors recognize underlying fundamentals.
Chapter 6: The Course of Earnings Chapter 6 delves into the importance of a company’s earnings in determining the intrinsic value of its common stock. Williams argues that earnings, when viewed as a stream of future cash flows, are a significant factor in assessing stock value. He also discusses how changes in earnings can impact stock prices.
Chapter 7: The Influence of Dividends In this chapter, Williams explores the relationship between dividends and stock prices. He emphasizes that dividends are a crucial component of intrinsic value for common stocks. The decision by a company to pay dividends or reinvest earnings affects stock valuation, and Williams provides insights into how this decision should be evaluated by investors.
Chapter 8: The Stability of Dividends Chapter 8 addresses the stability of dividend payments. Williams argues that investors often prefer stocks of companies with a history of stable dividend payments because they provide a predictable income stream. He discusses factors influencing dividend stability and how this stability impacts stock valuations.
Chapter 9: The Influence of the Rate of Interest Williams delves into the relationship between interest rates and stock prices in Chapter 9. He explains that changes in interest rates can significantly affect the present value of future cash flows used to value stocks. When interest rates rise, stock prices tend to fall, and when interest rates decline, stock prices typically rise.
Chapter 10: A Bird’s-eye View of the Problem. Chapter 10 provides a comprehensive overview of the key concepts discussed in the book, summarizing the principles of intrinsic value, dividend discounting, and the factors that influence stock prices. Williams reiterates the importance of a margin of safety when making investment decisions.
Chapter 11: Conclusion In the final chapter, Williams offers some concluding remarks. He emphasizes the value of rational, analytical, and long-term thinking in investment decisions. Williams underscores the significance of understanding the fundamental principles outlined in the book for successful investing.
In these chapters, Williams further develops his investment philosophy, explaining how various factors such as market dynamics, earnings, dividends, and interest rates influence the intrinsic value and market price of common stocks. He underscores the importance of patient, fundamental-based investing and the need for investors to focus on the long-term prospects of their investments. Overall, these chapters provide a comprehensive framework for evaluating investments based on intrinsic value.
Practical Application
The Theory of Investment Value by John Burr Williams provides practical applications and actionable steps for investors to determine the intrinsic value of a stock. Williams suggests that the intrinsic value of a stock is equal to the present value of all future dividends that the investor will receive. To calculate the intrinsic value, Williams recommends using a discounted cash flow (DCF) model, which involves estimating the future cash flows of the company and discounting them to their present value using a required rate of return. This allows investors to determine whether a stock is undervalued or overvalued based on its current market price.
Williams also emphasizes the importance of analyzing a company’s financial statements and understanding its competitive position in the industry. By conducting a thorough analysis, investors can identify potential risks and opportunities and make informed investment decisions. Overall, the practical applications and actionable steps suggested by Williams in The Theory of Investment Value provide a valuable framework for investors to evaluate stocks and make informed investment decisions.
Quotes from the book
“The value of any investment is the present worth of its future cash flows.”

“The stock market is not a way to get rich quickly. It is a way to get rich slowly.”

“Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Rationality is essential.”
“The market is a pendulum that forever swings between unsustainable optimism and unjustified pessimism. The intelligent investor is a realist who sells to optimists and buys from pessimists.”

“The investor’s chief problem – and even his worst enemy – is likely to be himself.”
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
“The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage.”
“The time to buy stocks is when the blood is running in the streets.”
“The intelligent investor should recognize that market panics can create great prices for good companies and good prices for great companies.”
“The stock market is a device for transferring money from the impatient to the patient.”