John Burr Williams

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1. 01

   The price of a financial asset should reflect the future income streams it will generate, not just speculative market movements.

   The Theory of Investment Value · 1938

   Intrinsic value is the discounted sum of all future dividends of an asset.

   Williams introduced the concept of intrinsic value, calculated by discounting all future income an investor can receive from an asset. For a stock, this income is dividends. The discount rate reflects risk and inflation. If the market price is much higher than this intrinsic value, the asset is overvalued; if lower, it is undervalued. In practice, this theory underpins fundamental analysis. For example, a company with stable profits and consistent dividends will have a higher intrinsic value than one with volatile earnings, even if their market prices are temporarily similar.

   “The intrinsic value of a security is the present value of all future dividends, discounted at an appropriate rate of interest.”

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