The real danger in a market bubble is not that people speculate. It’s that they convince themselves they’re investing when they’re actually speculating.
Graham’s argument is: During the late 1920s, investors looked at years of strong stock market performance and assumed that growth would continue indefinitely. Because of that optimism, they stopped asking, “What is this business actually worth?” Instead, they accepted whatever price the market was quoting. When people stop caring about value and focus only on rising prices, the line between investing and speculation becomes blurred.
The most important part is his definition: “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”