Wall Street's pessimists keep citing the free fall in Japan a decade ago, when the Nikkei dropped 70 percent. But the United States today is strikingly different from Japan in 1990, observes STI Management, based in Stamford, Conn. "Japan's financial system was inefficient and debt-laden, while U.S. companies have long been restructuring both operationally and financially. Profitability here has skyrocketed, spurred by technological advances and consolidations, resulting in earnings growth of 20 percent or more at some companies."

To help lift diamond prices, Debeers, which controls 70 percent of the world's supply, has been convincing other suppliers to restrict sales, observes Individual Investor magazine (125 Broad St., 14th Floor, New York, NY 10004). "Combined with declining output from Australia, South Africa and the war-torn Democratic Republic of the Congo, this has left stockpiles at only 18 months' worth of production. Demand, meanwhile, is heating up, fed by economic recovery in Asia." Here are two diamond-mining stocks that Individual Investor particularly likes: Aber Resources, Red Diamond Mining.

The market believes that sales figures, unlike earnings, can't be manipulated. So it's been punishing stocks whose sales growth has declined even as earnings growth has expanded. Standard & Poor's Outlook (55 Water St., New York, NY 10041) has found eight stocks with five-year revenue growth of more than 20 percent annually and profit-growth rates even higher. Yet all have below-market price-earnings ratios: Alliance Capital Management, Constellation Brands, Computer Sciences, T. Rowe Price, Salton, Spieker Properties, Technitrol, Tellabs.

Want to know if a specific tax-free municipal bond is for you? Here's a simple formula from Walter Updegrave, author of "Investing for the Financially Challenged" (Warner Books, $13.99). "Divide the muni's yield by 1 minus your marginal tax bracket. If the result is higher than competing taxable bond yields, the muni's a better deal."

Does the nimbleness of small stock funds translate into higher profits? Indeed it does, according to a recent study by Financial Research Corp. According to FRC, equity funds with less than $130 million outperformed funds with more than $1 billion by 0.8 percentage points annually for the 10-year period ending September 1998. And that performance gap has increased since. During the most recent three-year period, small funds outperformed by 1.4 percentage points annually.

Gold has deteriorated as a monetary factor largely because of the dollar's strength, observes Personal Capitalist newsletter (6911 S. 66th East Ave., Tulsa, OK 74133). "And the dollar has been strong because the U.S. economy has been robust. With the economy weakening, gold prices could benefit as investors seek an alternative store of value."

Smart Money magazine (1755 Broadway, New York, NY 10019) recently rated all the major discount brokers using seven different criteria. For investors who use discounters strictly to save money, here are the five with the lowest average commissions and fees, along with their overall poll rankings: (1) Datek (overall rank: 20), (2) Brown & Co. (overall rank: 25), (3) Muriel Siebert (overall rank: 2), (4) Suretrade (overall rank: 15), (5) TD Waterhouse (overall rank: 1).

Investor's Notebook is a digest of investment opinion from the world's leading financial advisers. It does not recommend any specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.