"Analysis connotes the careful study of available facts with the attempt to draw conclusions therefrom based on established principles and sound logic." - Security Analysis, Introduction
"The essence of security analysis is the determination of whether an issue is worth more or less than it is selling for." - Security Analysis, Introduction
Security analysis = facts, logic, and intrinsic value vs. price. Market analysis = forecasting future prices or averages. Graham treats the first as investable and the second as speculative guesswork.
Why market forecasts fail his test
Forecasts lean on opinions and trends, not verifiable facts.
Price paths are not controllable inputs; balance-sheet strength and cash flows are.
Reliance on crowd swings erodes the "safety of principal" test; it makes the position speculative.
How to practice security analysis instead
Start with statements and footnotes: cash quality, liabilities, off-balance-sheet items.
Estimate intrinsic value conservatively (NCAV, liquidation value, or normalized earnings).
Compare to market price; require a margin of safety before acting.
Tie size and timing to value gap, not to short-term index views.
Graham on discipline and margin
"To have a true investment, there must be present a true margin of safety." - Security Analysis, Margin of Safety chapter
"The market action of a security tends to show how it is valued by the speculative public; the intrinsic value tells us how it should be valued by the informed investor." - Security Analysis, Part I
Margin of safety is the buffer that makes value work robust to errors.
Market quotes are reference points, not instructions. Use them to buy at discounts or sell at premiums.
Practical checklist (market vs. security analysis)
Am I forecasting price paths, or comparing price to conservatively estimated value?
Are my inputs factual (cash, assets, liabilities, earning power) or opinion (sentiment, macro timing)?
Is there a margin of safety after haircuts?
Does my thesis survive if prices stay flat longer than expected?
Is this an investment (meets Graham's tests) or speculation (forecast-driven)?
Applying it to net-nets and small caps
Rebuild NCAV with haircuts; ignore market chatter.
Check dilution and debt maturities to protect principal.
Let volatility work for you: set buy limits below value; avoid chasing price.
Size positions for time risk—value gaps can take years to close without catalysts.
Takeaways
Security analysis is value vs. price, rooted in facts and margin of safety.
Market analysis is timing and trend forecasting; Graham classifies it as speculation.
Keep the two separate: lead with value work, let price only determine whether you have enough safety to act.