I have dedicated myself to a year-long study of Benjamin Graham's book Security Analysis.  Currently, I'm studying:

Part 1: Survey and Approach
Chapter 4: Investment and Speculation

(page 33) It is our view that security analysis is primarily useful to the investor, and that it can perform only a limited service at best on the speculator's behalf.

(page 33) General connotations of the term "investment."

My Thoughts: Graham has three meanings when talking about "investment."

(page 33) The first meaning...relates to putting or having money in a business.  ...The second set of uses applies the term in a similar manner to the field of finance.  In this sense all securities are "investments."  ...a third and more limited connotation -- that of investment as opposed to speculation.

(page 34) It should be essential...for anyone engaging in financial operations to know whether he is investing or speculating and, if the latter, to make sure that his speculation is a justifiable one.

My Thoughts: Generally speaking, nearly everyone understands an investment versus a speculation, but if you try to formulate a definition then it becomes difficult.  One persons investment might be another's speculation.

A friend used to tell me that the definition of a long-term investment is a short-term investment gone bad.  By turning the short-term, speculative investment into a long-term investment; the investor has justified away their error for speculation.  I suspect Graham would agree by his comment:

(page 35-6) Long-term speculation is equally well established as a rueful fact (when the purchaser holds on hoping to make up a loss)...

(page 37) A proposed definition of investment.  This comparison suggests that it is not enough to identify investment with expected safety; the expectation must be based on study and standards. &160;At the same time, the investor need not necessarily be interested in current income; he may at times legitimately base his purchase on a return which is accumulating to his credit and realized by him after a longer or shorter wait.

My Thoughts: The term "investment" is not one size fits all.  Investors differ from each other and provided solid study and standards have been given to the investment opportunity, the investor may move forward with the decision to buy or sell.

(page 38) An investment operation[1] is one which, upon thorough analysis[2], promises safety[3] of principal and a satisfactory return[4].  Operations not meeting these requirements are speculative.

My Thoughts: (Number labels were added for the benefit of my study)

(page 38) [1] We speak of an "investment operation" rather than an issue or a purchase, for several reasons.  It is unsound to think always of investment character as inhering in an issue per se.

The price is frequently an essential element...furthermore, an investment might be justified in a group of issues...it is also proper to consider as investment operations certain types of arbitrage and hedging commitments.

(page 38) [2] By "thorough analysis" we mean, of course, the study of the facts in the light of established standards of safety and value.

(page 38) [3] The "safety" sough in investment is not absolute or complete; the word means, rather, protection against loss under all normal or reasonably likely conditions or variations.

(page 39) [4] "Satisfactory return" is a wider expression than "adequate income," since it allows for capital appreciation or profit as well as current interest or dividend yield.  "Satisfactory" is a subjective term; it covers any rate or amount of return, however low, which the investor is willing to accept, provided he acts with reasonable intelligence.

(page 41) The value of analysis diminishes as the element of chance increases.  ...Even if we grant that analysis can give the speculator a mathematical advantage, it does not assure him a profit.  His ventures remain hazardous; in any individual case a loss may be taken; and after the operation is concluded, it is difficult to determine whether the analyst's contribution has been a benefit or a detriment.

My Thoughts: One can apply as much analysis and study as they want on a speculative investment, but it is still speculation and that engenders the hazard of loss.

(page 42) It would seem prudent, therefore, to consider analysis as an adjunct or auxiliary rather than as a guide in speculation.

(page 45-6) In order to take proper advantage of the margin-of-safety principle in investment operations it is almost always essential that the investor practice adequate diversification.  A margin of safety does not guarantee an investment against loss; it merely guarantees that the probabilities are against loss -- and, in the case of common stocks, that the probabilities favor an ultimate profit.  The individual probabilities may be turned into a reasonable approximation of certainty by the well-known practice of "spreading the risk."  This is the cornerstone of the insurance business, and it should be a cornerstone of sound investment.

My Thoughts: Underlining added for emphasis.  I find it interesting to note that Berkshire Hathaway is heavily involved in the business of insurance.
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