Investing and business books are complicated. Picture doodles are not.


Speculators look at price movements and try to anticipate and profit from them. Investors are interested in acquiring securities at suitable prices and holding them.

This is a separate concept from speculative factors. When analyzing a security, macro factors (interest rates, the economy), may be considered speculative factors as it is an aggregation of data and difficult to predict with accuracy. By comparison, investment factors tend to be closer to the company level such as earnings, cash flow, dividends. These may have more sustainability and predictability by comparison.

*This was in the 1949 edition of the Intelligent Investor but was de-emphasized in the more recent editions.

The premium valuation of strong successful companies that trade at premium multiples tends to be driven by speculative factors. That is, the valuation is dependent on whether it deserves it's premium and the determination of intrinsic value is less certain. As sentiment changes the premium can evaporate.


The mindset of the investor is to think of a share as ownership in a business. There is less reliance on price quotations to determine the value of a company. Quotations merely give an investor options if he wishes to take action, the prices themselves do not influence his determination of value.

The metaphor of Mr. Market is that you are business partners with Mr. Market who offers to buy out your partnership interest every day. Mr. Market is prone to mood swings. Somedays Mr. Market is enthusiastic about prospects and will offer a high price, and other days he is depressed by fears and offers only a low price. Other days he is more reasonable.

The important point is that the investor should not consider such offers as the true value of the interest. Instead the investor should form his own judgment and ideas about the intrinsic value. Investing is at it's best when it is business like. Where the investor focuses on what they can control, not the uncontrollable.


There is always the risk that you are wrong. An investor should selectively choose investments that have a margin of safety. No matter how enticing the prospect, the investor has to be disciplined and not overpay.

Some aspects to consider are whether the company is being priced below its long run earnings power, where the company has reliably demonstrated that earnings power in the past. Or if the company is trading below its liquidation value. The investor is trying to determine if it is at a substantial discount to intrinsic value. That way, even if the investor is partly wrong in his estimates, there is a cushion where the investor has less downside potential.