Foreword to the First Edition

One weekday evening early in 1989 I was home when the telephone rang. Our middle daughter, Annie, then eleven, was first to the phone. She told me that Warren Buffett was calling. I was convinced this had to be a prank. The caller started by saying, This is Warren Buffett from Omaha as if I might confuse him with some other Warren Buffett . I just finished your book, I loved it, and I would like to quote one of your sentences in the Berkshire annual report. I have always wanted to do a book,...

Calculate What The Business Is Worth

Through the years, financial analysts have used many formulas for determining the intrinsic value of a company. Some are fond of various shorthand methods low price-to-earnings ratios, low price-to-book values, and high dividend yields. But the best system, according to Buffett, was determined more than sixty years ago by John Burr Williams (see Chapter 2). Buffett and many others use Williams's dividend discount model, presented in his book The Theory of Investment Value, as the best way to...

John Burr Williams

John Burr Williams graduated from Harvard University in 1923 and went on to Harvard Business School, where he got his first taste of economic forecasting and security analysis. After Harvard, he worked as a security analyst at two well-known Wall Street firms. He was there through the heady days of the 1920s and the disastrous crash of 1929 and its aftermath. That experience convinced him that to be a good investor, one also needs to be a good economist.9 So, in 1932 at the age of 30 and...