Mr. Graham proposed that the price of every stock consists of two elements. One, “investment value,” measures the worth of all the cash a company will generate now and in the future. The other, the “speculative element,” is driven by sentiment and emotion: hope and greed and thrill-seeking in bull markets, fear and regret and revulsion in bear markets. The market is quite efficient at processing the information that determines investment value. But predicting the shifting emotions of tens of millions of people is no easy task. So the speculative element in pricing is prone to huge and rapid swings that can swamp investment value. Thus, it’s important not to draw the wrong conclusions from the market’s inefficiency… even after the crazy swings of the past decade, index funds still make the most sense for most investors. The market may be inefficient, but it remains close to invincible.