Ch 1 · Investment versus speculation
Chapter 1 of 21 · 8 min
Graham's distinction — the foundation everything rests on.
Before you read further in this course: take this test. Open your broker and look at your last five trades. For each one, write down WHY you bought. (a) did you read the report and calculate the value, or (b) tip/gut feeling/the price went up? If more than two out of five are (b) - you are a speculator according to Graham.
That is nothing to be ashamed of, but the rules are completely different.
An investment operation is grounded in thorough analysis, promises safety of the principal and a satisfactory return. If the operation does not meet all three requirements it is speculation. Graham warns on the very first page: the result of a speculative position depends on someone else paying more later; the investment result depends on the company's value. Most market participants cross this line daily without knowing it - they buy 'because it is going up'.
The question that decides everything: where is the return supposed to come from - the company or the next buyer? The book's path also shows that both defensive and enterprising investors can succeed - but the half-hearted one, who reads tips and believes they are investing, is the one who loses.