Separate and distinct things not to be confused,as every thoughtful investor knows, are real worth and market price.
—JOHN BURR WILLIAMS
Decades ago, investing was haphazard. Investors figured that a stock was worth whatever people were willing to pay, and the game was to guess what people will pay tomorrow for a stock you buy today. Then John Burr Williams unleashed a revolution by arguing that investors could use something called present value to estimate the intrinsic value of a company’s stock.
Think of a stock as a machine that generates cash every few months—cash that happens to be called dividends. The key question ...