In many respects, this paper may be regarded as a logical sequel to an earlier one presented to the Institute nearly seven years ago. In that paper the assessment of industrial ordinary shares was discussed in considerable detail and methods were suggested which could be used both to make projections of future dividends and earnings for different companies and to utilize these estimates in making investment decisions. Much of the discussion on the earlier paper centred on the latter problem and the present paper is concerned entirely with this aspect of share assessment. The making of future projections will not be considered again; suffice it to say that our methods have remained largely unchanged. The principle on which the technique that we have now developed rests is closely linked with the previous concept of a ‘capitalization rate’ but in passing we would mention that we have made a brief experiment with what we term ‘growth yields’, i.e. the compound interest return to be expected from a particular share at a given price on the basis of the forecast future dividends. Our results utilizing this method were in fact significantly better than those obtained using the more familiar concept of relative yields (see §8) but, as the figures presented later in this paper show, they were not as good as those obtained using the method which forms the basis of this paper.

When I was invited to read this paper I felt not only honoured but particularly pleased to be given the opportunity to set forth for your criticism the views I have come to hold concerning the complex of problems centred round the use of Bayes's theorem. For what body of people has for longer been engaged in the application of the mathematical doctrine of probabilities to the affairs of life? And so, what body could be better fitted to judge the merits and the faults of any attempt to clarify the principles of the subject? It is no accident that the original publication of Bayes's famous paper was brought about by the author of the Northampton Life Table; and in the modern period, in dealing with the criticisms of Bayes's postulate stemming from Boole, the credit for a major advance is shared between Sir Harold Jeffreys and Mr Wilfred Perks, independent originators of the theory of invariant prior distributions. And, to anticipate a point I shall develop in more detail later on, it appears to me that the experience of actuaries in the formation of categories as, for instance, by occupational group, as abstainers or non-abstainers, and so on, can be highly relevant to the effective use of Bayes's theorem in many wider contexts; and an examination of the principles underlying the formation of categories should improve our insight into problems of statistical inference in general.