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Myron Gordon at the University of Toronto in 1982.
Myron Gordon at the University of Toronto in 1982.

Hatched at MIT in 1959, the Gordon Equation soon grew into an important tool for investors Add to ...

Myron J. Gordon - known as Mike to most of his family and colleagues - was a professor of finance who created a simple formula to calculate the fair value of a stock in 1959.

Einstein had E=MC 2.

Gordon had P=D/(k-g)

(Price P equals dividend value D divided by (expected return k minus growth g.)

For a Harvard-trained economist, it was an interesting mathematical exercise that allowed investors to incorporate the value of future dividends and growth rates into investment decisions. But it is unlikely that Gordon was aware that his formula would build an important bridge between the real world of business and the theoretical world of academe.

While its usefulness was readily apparent to stock brokers, the Gordon Growth Model also proved to Wall Street that there was practical research to be mined in the ivory towers of university business schools. Today, half a century later, sophisticated computerized variations of the model drive pricing decisions in the world's capital markets and can also be used to interpret what prevailing stock prices suggest about the direction of the economy.

Financial historian and Ohio University professor emeritus Stephen Buser marvels at the simple genius of the formula.

"Right now we take it for granted. We say, 'Sure that's nothing.' But at the time it was a big deal ... a very impressive and convenient tool that summarized a very important issue and made it accessible to a lot of people. It was a pretty easy formula in a world before hand-held computers."

While others might have coasted along on the adulation of the business world, Gordon continued to follow his restless curiosity wherever it led, helping to build the foundation of University of Toronto's Rotman School of Management along the way.

He became expert in valuing communication and power utilities and, as a consumer advocate, fought hard against the privatization of electrical utilities. He set up academic exchange programs with Chinese universities for the Canadian International Development Agency and followed the economic development of China with keen interest, offering advice and guidance to his counterparts there.

"He was as much a social theorist and a social activist as he was a finance specialist," says his long-time friend Abraham Rotstein, emeritus professor of economics and political science at U of T. "You don't usually get people proficient at analyzing finance taking much interest in broader social issues. But he was always interested in where societies were going..."

Myron Jules Gordon, economist, financial theorist and consumer activist, died on July 5 in Summit, N.J., at the age of 89 after several years of ill health and a series of strokes.

He was born on Oct. 15, 1920, the son of Jewish immigrants who had arrived separately from Odessa, Ukraine, as children and then met and married in New York. Gordon grew up an only child in Brooklyn and Washington Heights. His father, Jack, was an entrepreneur and salesman who lived by his wits; his mother, Eva, played piano and shared her love of books with her son.

At 16, Gordon enrolled in journalism at the University of Wisconsin but soon switched faculties after developing a passion for economics. He graduated in 1941, the year Japan bombed Pearl Harbor, and worked in Washington, D.C., for a few months before joining the U.S. Army as a 2{+n}{+d} lieutenant. While posted to an artillery unit in Hawaii, he took on the name Mike. It was there that he met a young YMCA worker, Helen Elizabeth (Betty) Taylor, the daughter of Baptist missionaries who worked in China and Ohio.

After being transferred to Oklahoma in 1945, Gordon proposed by mail. His bride's journey to the army base took so long, she missed the wedding date by two days so Gordon went AWOL in the middle of the week to marry her.

After his military discharge in 1946, he pursued a doctorate at Harvard University while teaching in Pittsburgh at what is now Carnegie Mellon University. He later taught at Massachusetts Institute of Technology for 10 years, which was where he developed his revolutionary investment equation.

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