The sentence "Make good friends, be happy to make friends, but don't be bad friends" means to make beneficial friends, associate with honest friends happily, and not make harmful friends.

There are three kinds of beneficial friends and three kinds of harmful friends: it is beneficial to make friends with honest and knowledgeable people, but it is harmful to make friends with flatterers, people who speak ill of others behind their backs, and people who are good at rhetoric.