COMMENTARY: ARE THESE BULLS FARSIGHTED--OR WEARING BLINDERS?

Ah, if only investor confidence were an infallible predictor of stock markets. In the real world, of course, events prosperous and calamitous intervene. Economic tidings, corporate profit reports, and interest rates move the market--as do, most recently, disorder in Asia and foreign-exchange wildness.

Beneath it all, though, investor confidence is still a critical factor in slowing, or speeding, market trends. And make no mistake: Investors just now remain very, very confident. The Business Week/Harris Poll reveals that Americans have even more faith in the stock market now than they did 18 months ago. Few individuals were spooked by the sharp drop in the markets on Oct. 27, and most indicate that another plunge soon wouldn't worry them much.

The survey reflects attitudes only of mostly small retail investors, not institutions. Still, they speak to a striking optimism. Warranted or not, such bullishness--or just plain thickness of skin--could provide a buffer if markets grow more fragile. The little guys appear predisposed to stay in the market even when it falls, making the prospect of a large flight from stocks or mutual funds extremely unlikely.

Many of the responses to this year's survey are very similar to those investors gave in May, 1996. Where there is change, it tended to reflect somewhat higher expectations. For example:

--A year and a half ago, 30% of the public expected to invest less in stocks or stock mutual funds, while only 27% expected to invest more. Now those who expect to invest more are unchanged at 27%--but the number who expect to invest less has dropped to 23%.

--Last year, median expectations for long-term total returns in the stock market were 10%. This year they are 11%--remarkably high. And mean expectations have increased from 9% to 11%.

Investors who have bought stock recently are far more bullish than noninvestors. Among investors, 50% expect to invest more in stocks or stock mutual funds, while only 17% expect to invest less. And 49% of recent stockbuyers expect shares to rise next year; only 12% think they will fall.

A crash? No big deal. The overwhelming majority of respondents just shrugged off October's sharp drop in the market. Only 3% admitted to selling as much as a single share. Fully 90% say they neither sold nor bought, while 6% say they bought stock.

True, fully 62% of investors believe stocks are overvalued. The question, though, is: "Overvalued compared to what?" Compared to their underlying value perhaps, but investors seem to believe that the market may well continue to overvalue stocks for the foreseeable future. Indeed, while 46% of investors think "another big crash" is at least somewhat likely in the next 12 months, most believe the downturn will prove temporary. Only 24% think it is even somewhat likely that the market will "enter a prolonged downturn lasting a year or longer."

The stubborn optimism of today's investors is reflected in their attitudes toward international stocks. Notwithstanding Asia's crashing markets and currencies, only 28% of investors believe that international stocks are overvalued. More than a third think overseas markets are fairly valued and a good deal now. More than that, a gutsy 17% believe international stocks are now selling at bargain prices and look very attractive. At the same time, investors are remarkably bullish on technology. Only 14% believe tech stocks will underperform the market." Fully 51% are bullish.

All that said, Americans' single-biggest asset holding still is real estate. Even among recent stock investors, property represents 42% of household assets. And as stocks grow more volatile, interest in real estate may escalate. When asked to pick just one type of investment that "would be the best to make right now," 33% of respondents chose real estate, an increase from 25% in May, 1996.

By Humphrey Taylor, chairman and CEO of Louis Harris & Associates Inc.