The Petersburg Paradox by Durand

Graham: “It is important for the student to understand why this pleasingly simple method of valuing a common stock or group of stocks had to be replaced by more complicated methods, especially in the growth-stock field. It would work fairly plausibly for assumed growth rates up to, say, 5 percent. The latter figure produces a required dividend return of only 2 percent, or a multiplier of 33 for current earnings, if payout is two-thirds. But when the expected growth rate is set progressively higher, the resultant valuation of dividends or earnings increases very rapidly. A 6.5% growth rate produces a multiplier of 200 for the dividend, and a growth rate of 7 percent or more makes the issue worthy of infinity if it pays any dividend. In other words, on the basis of this theory and method, no price would be too much to pay for such a common stock.