In The Intelligent Investor, page 36, Zwieg, who is writing the commentary, states "those who invest make money for themselves. Those who speculate make money for their brokers." Why is it the case that brokers profit off speculators?

  • 6
    seems that phrase is similar to "Don't Try to Mine Gold When You Can Sell Shovels" May 27, 2020 at 17:00
  • 5
    this reminds me of the old Dilbert cartoon where Dilbert is explaining stock options to Dogbert - "It's complicated... basically you give your money to a stock broker and he buys nice things for his family"
    – user12515
    May 28, 2020 at 18:51

6 Answers 6


It's trying to say those who speculate are in for short term and tend to trade more often, thus paying more brokerage fees and making the broker rich.

A longer term investor on the other hand will not trade often and stays put with ups and downs and makes money in long run.

  • 10
    @C8H10N4O2 - It's a common misconception that investors make money from dividends. Only share price appreciation increases an account's value. May 26, 2020 at 17:09
  • 6
    @BobBaerker Why don't investors make money from dividends? Is it because the share price drops by the same amount as the dividend value on the ex-dividend date?
    – Flux
    May 27, 2020 at 2:27
  • 3
    How is "paying more brokerage" relevant in an era of $0 commission trades in the US?
    – Flux
    May 27, 2020 at 2:28
  • 4
    @Flux Graham died in 1976. The first edition was in the 1940's The question is about what Zwieg added in the 2003 edition. You can say it isn't as relevant today, but that isn't the question. May 27, 2020 at 10:07
  • 3
    @Flux - As mhoran_psprep stated, the book was written in 1949. What was written about trading 70 years ago was relevant to what the commissions were 70 years ago. What's relevant to you today in a world of zero commissions has nothing to do with an explanation of what Graham meant at that time. May 27, 2020 at 13:13

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.

  • I might be wrong, but in Security Analysis, Graham and Dodd were careful to distinguish between investment, intelligent speculation and unintelligent speculation. Not all speculation is unfavorable gambling, although the closer you get to unintelligent speculation, the more of an unfavorable gamble your speculation becomes.
    – Flux
    May 27, 2020 at 11:02
  • 2
    In this era of zero commissions in the USA, there are no hidden fees. Yes, there's margin interest for borrowing, broker assisted fees, borrow fees for shorting, ACAT and account closure fees, and in some cases reinvestment fees or annual IRA fees but these do not siphon money out of your account enabling brokers 'to get rich'. They're incidental fees for specific voluntary actions. May 27, 2020 at 14:12
  • 6
    @BobBaerker : Brokers are not charity. Please let that sink in. Maybe you don't see how they part you from your money, but they are no charity. They will find a way to earn themselves enough to be worth it for them.
    – vsz
    May 28, 2020 at 5:36
  • @vsz brokers are not charities, no, but that doesn't mean they are charging hidden fees. Google makes money from you as well but they aren't charging you hidden fees. Schwab for example who went zero-fee last year make most of their money from uninvested cash balances. That is using your money to make them money (as your bank does with money you leave in your checking a/c) but it's not taking a fee from you, if you leave $10,000 sitting there uninvested it will stay $10,000 (technically, if you select the sweep option it will increase slightly- but Schwab make more on it than they give you).
    – Ivan McA
    May 28, 2020 at 14:11
  • 1
    @vsz - Suppose someone has a brokerage account with $10k in it and then buys 500 shares at $20 each ($10k cost). Rather than professing that brokers are not charity, perhaps you should enumerate the ways that a broker is going to part this person from his money? Looking forward to an explanation. May 28, 2020 at 14:32

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.

  • 1
    Fidelity, Schwab, Vanguard, etc. make billions of dollars per year from investors. They make money from net interest income, mutual fund and ETF service fees, advice solutions, annuities... The largest source of revenue for Schwab is “net interest income” (over half), earned by investing deposits and customer deposits (uninvested cash) sitting in an account earning minimal interest and investing it at a higher interest rate to make money. May 27, 2020 at 15:52
  • True, those companies provide many more services than just trades, which are probably just "loss leaders".
    – Barmar
    May 27, 2020 at 16:43
  • @BobBaerker I've updated the answer to remove the specific reference to Schwab, and add mention of the other services.
    – Barmar
    May 27, 2020 at 16:46

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.

  • 1
    Your statement is true but I don't think that it's relevant to trading. Increased trading in a commission era enriched brokers. Common belief is that majority of traders lose money. So who's making the money that traders lose? It's certainly not buy and hold investors. And today, it's certainly not brokers since we're now in an era of no commission trading. Therefore, it can only be a small minority of traders who are successful and profit from the majority who lose. May 27, 2020 at 15:39

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.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .