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December 06, 1987|MARTHA GROVES | Times Staff Writer

In 1934, two Columbia University business professors, Benjamin Graham and David L. Dodd, published a textbook called "Security Analysis"--a deceptively simple title for a book that many still regard as the bible of the investment community.

Since then, the book, a guide to scrutinizing corporate finances, has sold more than 750,000 copies. Soon after the Oct. 19 market plunge, publisher McGraw-Hill came out with its fifth edition, updated by three other authors.

Graham died in 1976, but Dodd, now 92 and living in Falmouth, Me., proclaims that the "valuation approach is still valid, and I'm sailing happily on it." If he has one bit of advice for veterans of the 1987 market crash, it is that the situation is strikingly similar to 1929, which "created a veritable wealth of investment opportunities."

Many money managers and investors still cite Graham and Dodd as the classic guidebook for serious investors. Also winning high praise is a book that predates Graham and Dodd. "Reminiscences of a Stock Operator," published in 1923, follows the exploits of speculator Jesse L. Livermore, who made and lost several fortunes over a career spanning more than three decades. (Some say Livermore penned the book, using the pseudonym Edwin Lefevre.)

Livermore made his first fortune while in his 20s, selling short during a "rich man's" panic in 1907 and earning himself an enduring nickname as "the boy plunger." In 1940, heavily in debt, Livermore put a bullet through his head in a New York hotel, leaving a suicide note that read: "I'm a failure."

Insomniac investors sobered by the recent goring of the bull market just might find some lessons in "Reminiscences" and in other books mentioned by some the nation's best-known investors.

Asher B. Edelman, corporate raider:

"When we are near, we must make the enemy believe that we are far away," the Chinese philosopher Sun Tzu wrote in the 4th Century BC. "When far away, we must make him believe we are near."

In his classic "The Art of War," Sun Tzu taught that "all warfare is based on deception." Destroy the enemy's will, and the battle is won. Little did he know how many corporate takeover artists would, centuries later, adhere to his teachings.

Edelman, 48, sings Sun Tzu's praises. The advice, he says, ranks right up there with the classic treatise on value investing, Graham and Dodd's "Security Analysis."

"I've only used two books," Edelman says brusquely. Why these? "Sun Tzu, because no one has ever better understood the tactics of investing. And Graham and Dodd, because no one has ever better understood values."

With varying success, Edelman has waged nearly a dozen takeover battles in the last few years from his New York office. Ever on the prowl, Edelman also absorbs himself in literature of another sort. "I tend to read annual reports, balance sheets, 10-Ks, 10-Qs," he says.

In October, the part-time Columbia University instructor even offered a $100,000 prize to any student who could find him a good company to buy. Edelman's class was titled "Corporate Raiding: the Art of War." Columbia shot down the idea.

Michael Metz, market strategist:

A Harvard-trained lawyer who gravitated to Wall Street, Metz is considered within the securities industry as a follower of Graham and Dodd's value approach to investing. But, says the senior vice president of Oppenheimer & Co. in New York, the first rule of investing is: Know thyself.

"I would start with Freud's 'Introductory Lectures on Psychoanalysis,' " he says. In the same psychological vein, he suggests Edwin Lefevre's "Reminiscences of a Stock Operator" and "Street Fighting at Wall and Broad," a 1980 tome by Marchand Sage. Those books "show how stocks are manipulated mechanically and how a professional investor capitalizes on the psychological quirks and eccentricities of the amateur speculator and investor."

From there it's a logical step to another classic, Charles Mackay's 1841 treatment of crowd mania, "Extraordinary Popular Delusions and the Madness of Crowds." In the book, Mackay chronicles crazes that have hit masses of people, such as the 17th-Century tulip bulb mania in Holland.

"The problem is that most investors fall victim to their own psychological quirks (and make) mistakes in buying and selling," says Metz, who has childhood memories of the Depression. "A reasonably intelligent person who's not a slave to his own lunacy should be able to make money in the market."

Paul A. Bilzerian, corporate raider:

In five failed takeover efforts, Bilzerian has pocketed more than $50 million. He was also recently rebuffed by Singer Co.

The 37-year-old Florida investor views it as a wonderful irony that one of his literary idols, T. Boone Pickens Jr., also recently bought a stake in the defense electronics firm. Bilzerian names the oilman's autobiography, "Boone," as one of two books that have most influenced him.

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