["The Intelligent Investor: The Definitive Book On Value Investing" was written by Benjamin Graham, with commentary in the latest edition by Jason Zweig.]
Graham’s definition of investing: “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.” (35)
Many people think that they’re investing when they’re really only speculating.
“[Speculating is] the worst imaginable way to build your wealth. That’s because Wall Street, like Las Vegas or the racetrack, has calibrated the odds so that the house always prevails, in the end, against everyone who tries to beat the house at its own speculative game.
“On the other hand, investing is a unique kind of casino – one where you cannot lose in the end, so long as you play only by the rules that put the odds squarely in your favor. People who invest make money for themselves; people who speculate make money for their brokers. And that, in turn, is why Wall Street perennially downplays the durable virtues of investing and hypes the gaudy appeal of speculation.” (36)
“An investor calculates what a stock is worth, based on the value of its businesses. A speculator gambles that a stock will go up in price because someone else will pay even more for it.”
A cynic knows the price of everything, and the value of nothing.
However, Graham does acknowledge: “Without speculation, untested new companies would never be able to raise the necessary capital for expansion. The alluring, long-shot chance of a huge gain is the grease that lubricates the machinery of innovation.” (21)
While speculation can certainly be intelligent, it can also be unwise if you’re:
1. Speculating when you think you’re investing.
2. Doing it as a career without the requisite knowledge and skill.
3. Risking more than you can afford to lose.
“Never mingle your speculative and investment operations in the same account, nor in any part of your thinking.” (22)
“To enjoy a reasonable chance for continued better than average results, the investor must follow policies which are  inherently sound and promising, and  not popular on Wall Street.” (31)
“It seems that any intelligent person, with a good head for figures, should have a veritable picnic on Wall Street, battening off other people’s foolishness. So it seems, but somehow it doesn’t work out that simply. Buying a neglected and therefore undervalued issue for profit generally proves a protracted and patience-trying experience.” (32)
“If you look at a large quantity of data long enough, a huge number of patterns will emerge – if only by chance.” (45)
The intelligent investor has no interest in being temporarily right. To reach your long-term financial goals, you must be sustainably and reliably right. (37)