Contrary to popular belief, those stout-of-heart investors who ignored the trauma of Black Monday, Oct. 19, 1987, and stayed in the stock market during 1988 probably did quite well for themselves.

The Dow Jones average came in with an above average gain of 15 percent and went into the record books as the first year the Dow closed above 2,000. Not bad for a year which many investment counselors and money managers began with a very bearish outlook.Not so First Security Investment Management Inc., which chose not to stay on the sidelines last year. "While we took a contrarian stand in regard to stock prices, our expectations, and the portfolios of our clients, were rewarded," said H. James Darcey, president and chief executive of First Security Investment.

Those early '88 expectations, Darcey told First Security Corp.'s Outlook '89 Economic Symposium Tuesday, were that fair value for the Dow Jones average was near the 1800 level and that market prices would remain volatile and slightly over-valued during the year.

During most of '88, the Dow traded between 1800 and 2200 - between First Security's estimate of fair value and 20 percent overvalued. Never did it approach the 37 percent overvaluation of the pre-crash summer of '87. And for the year, the bond market brought investors a total return of about 8 percent.

"For the investor, 1988 will go down as a very good year and one that again proved the majority of Wall Street far off the mark," Darcey said.

But now, as investors head off into the seventh year of the nation's longest business expansion, Darcey says there are caution flags out on the stocks and bonds track.

The main concern, he said, is the inflationary pressure that long and strong growth is putting on industrial commodity prices, the labor force and capacity utilization. First Security believes the Federal Reserve will be successful in engineering a "soft landing" for the economy but probably not without slowing the growth of profits.

In any case, Darcey said First Security is maintaining a cautious asset allocation in its clients' portfolios: equities about 30 percent, bonds 50 percent - high quality, high coupon, shorter-term issues yielding near 9 percent - and cash 20 percent.

Cash equivalents are yielding slightly less than 9 percent and are being held for equity investment when valuations once again seem more attractive.

Stocks in First Security's model portfolio, said Darcey, are "defensive" in nature, mainly companies not overly sensitive to the economy such as drugs, foods, utilities and certain energy companies. Value is stressed, as is high quality and profitability. Companies that yield investors a 4 percent or higher dividend are desirable.

Overall, he said, the current return of the model First Security portfolio is around 8 percent, admittedly well below the "wild and crazy" days of pre-crash '87 but not that far off the 9.9 percent average return of common stocks over the past 60 years.

With investors able to get 9 percent nearly risk free, an all-equities portfolio doesn't make much sense today, indicated Darcey. Perhaps in the "not too distant future" it will be time to buy more stocks and lengthen bond maturities. For now, it's a time to be patient.