The stock market has a good friend in Burton Malkiel. At a time when investors are looking for almost any place else to put their inflation-eroded dollars, he thinks common stocks are the wisest buy.

There's even a place in the market, he says, for the first-timer with as little as $500 to $1,000 to invest.

The stock market is Malkiel's hobby. By profession, he's chairman of Princeton University's economics department, from where he also keeps an eye on Wall Street. He also served on President Ford's Council of Economic Advisers.

"I'm kind of a gambler at heart," says Malkiel, 47, "someone who likes to play 21 -- or the game of trying to pick stocks to keep ahead of the crowd."

Not only are stocks relatively "cheap" today, he argues in a new book, "The Inflation-Beater's Investment Guide (Norton, 190 pages, $8.95), "I really do believe -- in a fundamental sense --in stocks as a hedge against inflation."

At the moment, he says, potential investors "are disenchanted" with the market because prices have fallen. But that is what now makes them attractive. And over the long run, he believes, their rate of return will keep up with, or even exceed, the inflation rate.

What happened, says Malkiel, is that the country was "overly optimistic" in the 1960s. "We had an enormous amount of confidence -- misplaced, as it turns out -- that the world was an extraordinarily stable place." Stock prices soared, in may cases well beyond what their earnings might suggest they were worth.

Now "we have gone full circle to a kind of feeling of tremendous pessimism -- a sort of reaction to the tragedy in Iran that we can't do anything right, that we've lost control of our destinies, that everything is wrong at once."

The world, we've come to realize, "is basically not as stable as we imagined." This, he says, "is reflected in the stock market. The way the market adjusts is to have current prices fall."

As a result, stocks "are now priced to give an extraordinary rate of return in the future -- 17 percent or so," he believes, even "if people remain as pessimistic at the end of the '80s as they are now. Prices could even decline a little bit more, and people would still be well off."

Stocks, he says, are the only investment these days "that are cheap, in an era when everything else" -- gold, silver, collectibles, real estate -- "is over priced."

In another book, "A Random Walk Down Wall Street," published in 1973, Malkiel suggested that "a blindfolded chimpanzee throwing darts at The Wall Street Journal could pick a portfolio of stocks that would perform as well as those carefully selected by the highest priced security analysts." That thesis, he still believes, is correct.

He gave the royalties from "Random Walk" to his son Jonathan, now 8, investing them in stocks in 1973-74 -- "near a peak in the market and thus a terrible time to invest." Despite the drop in the market, Jonathan's stocks have appreciated nicely.

Malkiel says he's having a little trouble now trying to teach Jonathan "that when he has 25 cents in his pocket, he shouldn't spend it all immediately. With a few dollars in his savings account, he'll see the interest grow. Then he'll find he can spend the interest and leave his savings intact."

Malkiel's own portfolio contains about 20 stocks -- no big losers that he can recall. "I've done somewhat better than average . . . reasonably well over the years."

It's "not hard," he says, "to make money" in stocks. His strategy is that first you "do all the logical things," such as checking if the stock is reasonably priced and has good prospects. "There are a lot of them around now."

But then you assess a stock's psychological impact. "You don't buy unless you think it will catch people's fancy -- that it is something they will want to buy." This, he calls "just a fascinating intellectual game."

Malkiel spends a great deal of his time studying the market, and warns potential investors they'll have to do the same. And he advises buying several stocks, not just one, to lessen your risk. "The one you buy might be a Chrysler."

For the novice, or the investor uninterested in devoting much time to his portfolio, Malkiel suggests buying into "closed-end funds" (officially called closed-end investment companies), which he says are now selling at a discount. "You can buy in with almost any amount you want -- $1,000, $500, a few hundred dollars a quarter."

The funds "buy a portfolio of standard common stocks," he says, and are professionally managed. While some "have invested in lackluster stocks with relatively low average returns," he writes, "others have done quite well."

In the 17th century, Holland went on a tulip-bulb binge, and people bartered "land, jewels and furniture," says Malkiel, because they thought the bulbs a money-making investment. But suddenly the price fell to almost nothing.

"The consistent losers in the market," says Malkiel, "are those who are unable to resist being swept up in some kind of tulip-bulb craze. The ability to avoid being swept up . . . is probably the most important factor in preserving the real value of one's capital and allowing it to grow."