In our recent studies of Wall Street history, Cora and I believe we've discovered the downfall of many businesses. Each dip or crash in the market seems to originate from the public's lack of confidence in business or in public or government policy and service rather than from the result of natural or man-made disasters. Historically, when people don't have confidence in a product or service, they won't buy it. And, if they own it and can sell it, they will - even at a loss.

In last week's article on the crash of '29, we discovered that a lack of public confidence encouraged runs on banks and dramatic sales of stocks on Wall Street in the 1930s. People didn't have faith in the country's goods and services, and this lack of confidence led to the Great Depression. Twenty years later, in the 1950s, only 8% of Americans were investing in the stock market. As of 1998, 60% of all households held investment portfolios. It took almost 70 years for confidence to be renewed in the stock market and in America's economics.

The Gallup Organization conducts many polls to measure America's temperature on specific subjects. This is a great site to find information on sports, education, race relations, and current topics. You can also find a wealth of information on business finance and on the stock market.

Since 1992, Gallup has been asking people to rate "economic conditions in this country today - as excellent, good, only fair, or poor." The percent indicating "excellent" is usually small, although this year it reached 26%. Typically it's in the low single digits. In addition to rating the current state of the economy, Gallup has been asking people whether they "think that economic conditions in the country as a whole are getting better or getting worse." This index is constructed by subtracting the low score ("worse") from the high score ("better"), ignoring the "same" category and those who express no opinion.

Thirty-five percent of the nation's adults now believe the economy is getting better, up from 29% in mid-June and up from 25% in mid-May. Over the same three months, perceptions of economic conditions have remained flat, with 40- 42% of Americans saying the economy is in excellent or good shape and 57-60% characterizing it as only fair or poor. *

On another note, only 14% of Americans currently name the economy as the most important problem, similar to the percentages recorded each month since April. Combining the number mentioning the economy with other types of economic concerns mentioned, such as unemployment, gas prices and taxes, a total of just 31% name any type of economic concern in the latest poll.

In contrast, at the height of economic concerns at the end of last year, 42% of Americans specifically mentioned the economy, and a total of 73% mentioned some kind of economic problem. And at the height of economic optimism last summer, the respective numbers were 6% (those mentioning the economy) and 23% (all economic concerns combined). Gallup News Service states, "...the current rate of top-of-mind concern over the economy is more in line with economic good times rather than recessionary times."

The current polls regarding the stock market tell a bit of a different story. When the PaineWebber/Gallup Index of Investor Optimism was instituted in October 1996, they started the investor confidence level at 100%. Other than a drop to 85% in February 1997, the level has maintained over 100% until this past July. Overall investor confidence now registers 82.

The Index consists of three dimensions: measures of optimism about one's personal financial situation, the economy, and government policies that affect the investment climate. The largest declines last month occurred on the personal and governmental dimensions, each down by 10 points from June. While the economic dimension dropped only two points, it now matches its lowest level ever, first reached in February of this year.

Despite this new low in this Index of Investor Optimism, investor polls are bullish about the future of the economy and the stock market over the next twelve months. Currently, 56% of investors expect the stock market to be higher next year than it is now, while just 8% say lower. In addition, investors' expectations for this upcoming year's return on their investments are an average of 10.4%. This is much higher than the actual average return of 4.9% reported by investors for the past year.

This is good news, isn't it? I'm using this information to encourage myself to buy more of our stock picks while the prices are still low, and while public confidence is climbing.

Awareness of public confidence is a great tool to keep tabs on the markets, but you also need to have confidence in yourself and in your brokerage. History and statistics give us sound methods to develop strong financial strategies. More strength comes from buying long and holding at BUYandHOLD. This is how we exercise our measure of confidence. Hopefully, you'll join us.

Until Next Week,

Linda Goin

* The quoted Gallup results are based on telephone interviews with a randomly selected national sample of 1,038 adults, 18 years and older, conducted July 19-22, 2001. For results based on this sample, Gallup says with 95 percent confidence that the maximum error attributable to sampling and other random effects is plus or minus 3 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.