CORRECTED - Business Books: Decades on, value in Buffett's bible

(Corrects book title to "Security Analysis" from "Securities Analysis" in first paragraph.)

By Herbert Lash

NEW YORK, Oct 9 (Reuters) - How did Warren Buffett get such good terms on his recent investments in Goldman Sachs and General Electric? A new edition of "Security Analysis" by Benjamin Graham and David Dodd may provide some answers.

The book, first published in 1934, is often called the bible of value investing -- the practice of buying assets for less than their intrinsic value -- providing Buffett with a roadmap he says he has followed for 57 years.

"There's been no reason to look for another," Buffett, who studied under the authors at Columbia University, writes in the new, sixth edition (McGraw-Hill, $75).

Buffett holds it in such esteem that, of four books in his library he particularly treasures, two are copies of "Securities Analysis."

One is a copy he used as a study book at Columbia, and the other is a 1934 edition with hand-written notations by Dodd that was used to prepare publication of the second edition in 1940.

Buffett's other two treasured volumes are a first edition of Adam Smith's 1776 treatise on free markets and economics, "The Wealth of Nations," and a copy of "The Intelligent Investor," also by Graham. Graham, a successful investor in his own right, is considered the father of modern securities analysis.

SPECULATION VS ANALYSIS

The 75-year-old tome, published in the depths of the Great Depression, is not a dummies' guide to investing. With more than 1 million copies sold, it is aimed at professional investors and people with a serious interest in understanding values.

In prescient language, they warn of many of the commonly held but misguided precepts about investing that still dog the market today.

For example, forecasting securities prices is not properly a part of securities analysis, and using charts to predict prices cannot possibly be a science, according to "Securities Analysis."

Graham and Dodd prod their readers to study what constitutes value, when and why a security is underpriced or overpriced, and the irrational behavior of the market.

They note that the share price of General Electric (GE.N), the premier U.S. industrial company at the time, fluctuated wildly in the 1930s, a sign the stock was prone to speculation rather than being purchased for investment.

How else to explain GE had a market cap of $1.87 billion in 1937 but a year later only $784 million.

"Certainly nothing had happened within twelve months' time to destroy more than half the value of this powerful enterprise," the authors wrote. Similar thoughts may have gone through Buffett's mind when he took a stake in GE on Oct. 1.