John Burr Williams

John Burr Williams was an economist and professor who created one of the most famous formulas for stock valuation. The formula, also known as the "Dividend Discount Model" (DDM), is used by many people today to figure out the price of a stock. Williams' formula says that the price of a stock is equal to the current dividend (the money a company pays out to its owners) divided by the "discount rate," (often called the required rate of return). This lets investors figure out how valuable a stock is based on the amount of money it pays out compared to how risky it is. In other words, if a stock pays out a lot of money and the risk is low, it is worth more than a stock that pays out only a small amount of money with a higher risk.