Theory of Investment Value

Williams was among the first to challenge the "casino" view that economists held of financial markets and asset pricing—where prices are determined largely by expectations and counter-expectations of capital gains [6] (see Keynesian beauty contest). He argued that financial markets are, instead, "markets", properly speaking, and that prices should therefore reflect an asset's intrinsic value.[7] (Theory of Investment Value opens with: "Separate and distinct things not to be confused, as every thoughtful investor knows, are real worth and market price...".) Developing this idea, Williams proposed that the value of an asset should be calculated using “evaluation by the rule of present worth”. Thus, for a common stock, the intrinsic, long-term worth is the present value of its future net cash flows—in the form of dividend distributions and selling price.