What does Benjamin Graham mean by "Those who speculate make money for their brokers"?

Brokers make money from traders and investors, especially in the days when "The Intelligent Investor" was written (1949) when commissions were highway robbery. I don't know what they were at that time but in the late 70's, it cost $30-$40-$50 to buy a few hundred shares. So at that time, frequent trading definitely enriched brokers.

Graham is also implying that investors make money whereas traders do not. Some traders make significant money but it's a small percentage.

Speculation is gambling.

Speculants are the marks, they walk into the casino with lots of cash, most of them leave poor. A few get rich and inspire the next generation of marks.

Brokers are the house. They get rich.

A comment mentioned $0 fee brokerages. I took a look at one of these sites. On the front page they said "other fees may apply". Searching further gave a list of fees, including the following text:

Fee updates always apply to open positions. Fees are subject to change at any given time and could change on a daily basis, without prior notice, depending on market conditions. We encourage you to periodically visit this page to stay updated on current fees.

Brokers make money, or they go out of business. If they don't take one type of fees, they take another. They may also be swindlers, planning to disappear one day with all the money people have deposited.

In most retrospectives of the California gold rush, it is noted that it wasn't the people going out west to mine gold that made any money (though of course a select few did), it was the people who sold the shovels to those speculators. I think the quote is playing off that sort of idea.

As others have pointed out, the quote comes from many years ago, when broker commissions were much higher than they are now.

But even in these days of commission-free online trading, you're still making money for the brokerage. According to In the race to zero-fee broker commissions, here’s who the big winner is no-fee brokerages often make money by selling their trading history to other traders. This fits in with the well-known aphorism about free content on the Internet:

If you're not paying for the product, you are the product.

Others provide other services such as money management, financial planning, etc. to larger investors, which subsidize the free services to small investors.

Also, you need to think about the distinction between speculation and investing. "Investing" refers to generally holding on to a diverse portfolio of high quality investments for the long term; since the market generally tends to increase, you're almost guaranteed to make a profit unless you select lots of real dogs, and diversification protects you from that. "Speculation" implies gambling on companies with less of a track record, hoping they'll be the next Apple or Amazon.com, and/or frequent short-term trading; unless you're really lucky, you're not likely to make much money this way, but the broker still gets their share.

You might be wondering about venture capital firms, whose business model is based on investing in startup companies. They address the problem by having enough money to be able to invest in dozens of these companies at a time. They expect most of them to fail, but the hope is that a few of them will be successful enough to offset those losses and they come out ahead in the long run. They also often deal directly with the companies they're investing in, rather than going through brokers, since the companies aren't yet trading on an exchange.

This type of investing is hard for individual investors to do, other than by purchasing shares in VC limited partnerships. It's like playing slot machines -- unless you have lots of money, you're likely to go broke before you hit the jackpot.

Aside from brokers making the money (when they do), the bigger problem is that you are an amateur, playing a largely zero-sum game against players who are professional, much larger than you, have vastly better research than you, better staffed, more experienced and with a better sense of timing.

By "zero sum game" I mean that if you are speculating, you're obviously not just buying, buying, buying using an infinite pool of money; whenever you are buying, you are selling something else to raise the funds for that. That means you're not staying in stocks very long. And that means the natural long-term growth of stocks doesn't help you very much.

Even more than that, when you buy and sell, you're not trading into "the aether". You are trading with other real people who are choosing to pay or offer that price. In fact, if you ask yourself "Who is selling low such that they can buy low, and who is buying high such that they can sell high" -- you find yourself facing a sad realization.

Like they say about poker games, if you've been at the table 15 minutes and you haven't figured out who the mark is... you're the mark.

So amateur speculating only works if you are so vain as to be unable to see the truth. You are outclassed and outgunned.

I did speculate for a couple months. I actually broke even, despite paying about $1000 to my broker (in other words, my broker got all my profits). However, if I had put my money in an index fund at the time and let it sit, I would have been vastly ahead financially even based on the stock values nevermind the broker fees... and more importantly, would have had about 120 more hours a month to do with as I pleased.