Investing versus speculating

Graham opens by drawing a firm line between investing and speculating. An investment, in his definition, is a decision made after careful analysis that promises safety for the money you put in and a satisfactory return. Anything that fails those tests is speculation, however respectable it looks.

He does not ban speculation, but he insists that you know when you are doing it, keep it small and keep it separate from your real investments. Many of the worst losses, he argues, come from people who speculate while believing they are investing.