John Burr Williams (JBW) was a security analyst who wanted to learn more about how to estimate fair value. After several years in the job market, he returned to Harvard to learn about economics, with the hope of finding causes for the 1929 stock market crash and the 1930s depression. His Ph.D. was secondary to the knowledge he sought. His quest of knowledge over an academic degree did not endear him to the faculty of Harvard. John suspected that Wall Street over-estimated stock values and that did not endear him to the Wall Street establishment either.


Williams determined the intrinsic value of a stock is worth the present value of all dividends ever to be paid upon it, no more, no less.

John did not say “earnings,” the favorite of Wall Street, or cash flow to determine intrinsic value. John earned another demerit from Wall Street.

John gained another demerit from academics when he challenged the “casino” of economists who thought prices were largely determined by expectations and counter-expectations of capital gains.

John changed the focus of the market to underlying components of asset value from directly forecasting stock prices. JBW emphasized future dividends and earnings over book values.

Williams’ formula for intrinsic value was.  


Value=D/ (I-G)


He presented a poem and story to make his point between dividend income and capital gains.

For most people, math is cut and dried, with only one answer and poetry is subject to interpretation and controversy. With John Burr Williams, the reverse was true. The controversy still surrounds JBW’s words he wrote in 1938.


Mathematicians believe it is not practical to calculate far into the future and there is always the question of what rates of return you use for dividend growth and interest rates. To the layman, all he wants to know is that the dividend amount going up and what is the yield.


Harry Markowitz disagreed with William’s book on risk. Williams wrote that holding a large number of stocks that produce maximum (income) returns is the “equivalent” to diversifying risk

From The Theory of Investment Value

By John Burr Williams


”Earnings are only a means to an end, and the means should not be mistaken for the end. Therefore, we say that a stock derives its value from dividends, not earnings. In short, a stock is worth only what you can get out of it. Even so, spoke the old farmer to his son:


 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.

The old farmer knew where milk and honey came from, but he made no such mistake to tell his son to buy a cow for her curd or bees for their buzz.

The farmer is speaking of permanent investments, not speculative trading, and years of dividends for years to come (and possibly beyond your lifetime), not income (capital gains) for the moment.”


Markowitz had two problems. Stocks producing maximum (income) returns is a one- dimensional focus on return. The other problem is that diversification doesn’t account for risk, which can be quite risky. Markowitz wants to diversify a portfolio with stocks that have low co-variances to each other. Harry also thought investors who invest in stocks they believed to offer the best odds of producing maximum (income) returns-without taking risk into consideration, are speculators not investors. Harry wanted everybody to think about risk  and return.

JBW wanted to use dividends as his base for returns; Markowitz wanted to use price relationships for his returns. JBW wanted certainty of return on his investment. Markowitz wanted changing price relationships for his hope for capital gains and appreciation.          

    The debate goes on and Harry appears to be winning — until the cows come home after the algorithms destroy each other.