Until it actually happened, investor Richard P. Cook never thought it possible that a stock he owned could actually dwindle in value to nothing.

So the Maryland businessman was particularly horrified to see his 1,500 shares in the parent company of National Bank of Washington suddenly become worthless last August when federal regulators took over the city's oldest bank.

"I was sick," said Cook, 48.

Cook can count himself among thousands of area investors who no longer believe in the rock-solid nature of local companies and in Washington's ability to resist an economic downturn.

Since Jan. 1, stock prices of the region's 170 largest public companies have fallen an average of 31 percent, with financial institutions especially hard hit.

An investor who bought one share in each of Washington's 20 largest nonfinancial companies on Jan. 1 would have invested $947.28. By this month, that investment would have been worth only about $661.86, a loss of $285.42, or 30 percent.

The unrelenting slide in stock prices mirrors the damage to the Washington economy caused by the deterioration of the commercial and residential real estate markets, the heavy losses sustained by banks and thrift institutions and the slackening of government business for defense contractors around the Beltway.

Traditionally, these industries have been the main engines for growth in the Washington region. As a result, investors do not expect local stocks to recover until the economy of the Washington area improves.

"It's not magic anymore," said Leslie J. Silverstone, senior vice president at Dean Witter Reynolds Inc.'s Chevy Chase office. A few years ago, he said, an investor could comfortably buy local bank or real estate stocks, put them away and not worry.

"Who would ever believe that you could lose money on local stocks?" Silverstone asked.

The performance of Washington area stocks is not unlike that of small and medium-size companies around the country. The Value Line index of 1,700 stocks, a market barometer that tracks a wide cross-section of companies nationwide, has fallen 27 percent since the beginning of the year.

The across-the-board drop has hit many of Washington's most prestigious blue-chip companies, including Marriott Corp., Hechinger Co., MCI Communications Corp., USAir Corp. and Riggs National Corp. Marriott saw its shares fall to $9.87 1/2 from $33.37 1/2 at the start of the year, down 70 percent, as the company became caught in the hotel and real estate crunch.

USAir, buffetted by industry turbulence, dropped to $13.62 1/2 from $33.37 1/2, down 59 percent. MCI, hit by a slowdown in long-distance calling and new competition from market leader American Telephone & Telegraph Co., dropped to $18.62 1/2 from $44, down 58 percent. Riggs, operating in a troubled banking climate, fell to $9.50 from $21.25, down percent. Hechinger, faced with expansion costs, dropped to $8 from $12.62 1/2, down 37 percent.

Severe drops in stock prices adversely affect a company's value in the market. When it was selling for $33.37 1/2 a share, Marriott, which has 102 million outstanding shares, had a market value of $3.4 billion. But at $9.87 1/2 a share, the market value has fallen to $1 billion.

While the drop in a company's market value may be only a paper loss, the drop in price can hurt investors' image of a company and make it more expensive for a company to raise additional capital for future expansion.

The stock price decline has been especially significant to many area investors because they tend to include local companies in their holdings. At Hechinger, 70 percent of its individual stockholders are local residents; at Giant Food Inc., area residents make up 81 percent of the individual shareholders; at Marriott, the number is 32 percent; and at computer services contractor American Management Systems Inc. of Arlington, it is 90 percent.

Falling stock prices can also be costly for workers who have their savings plans tied to the stocks of their employer. Employees on the verge of retirement could see their retirement savings reduced by anywhere from 5 percent to 13 percent, according to estimates by David Binns, executive director of the Employee Stock Ownership Association of Washington.

The drop in value depends on the size of a company and its type of retirement program, which could include various combinations of defined benefit pension plans, 401(k) savings plans, profit sharing plans and employee stock ownership plans.

Among the heaviest losers in local stocks are officers and directors with large stakes in their own companies. In the case of National Bank of Washington, chief executive officer John J. Mason saw his worth drop $6.3 million when his stock in the bank's parent became worthless.

Not surprisingly, the "crash" in local stocks has made many investors nervous. When Ferris, Baker Watts, a Washington brokerage, recently placed an ad in The Washington Post offering a report on local banks and thrift stocks, the firm got 300 calls in two days.

"People have tremendous concerns and anxieties about whether the situation will deteriorate even further," said Gayle Ravenscroft, director of marketing, who talked with some of the callers.

The current climate for Washington area stocks is a sharp contrast to the heady, booming times in the first half the 1980s, when local shareholders watched the value of their holdings grow rapidly.

Evidence of the trend was clearly marked by the performance of the Johnston, Lemon & Co. daily index of 30 blue-chip area stocks. When compared to the performance of the Dow Jones industrial average, the local stocks had done far better in the years from 1980 to 1985.

But then the tide turned. In four of the next five years, from 1986 through 1990, local stocks trailed significantly behind the Dow stocks.

The prosperity of local stocks helped some Washington area mutual funds get underway, including the Bethesda-based Calvert Group's Washington Area Growth Fund.

Former portfolio manager Joseph Clorety III remembered the climate that helped local stocks outperform the major averages. Growing military expenditures were helping fuel the local defense industry. Falling interest rates were boosting the profits of banks and thrifts. And the merger and acquisition boom was raising the stock prices of local companies. A real estate boom was underway and in retail stores, the cash registers were ringing steadily. "Things were just rosy," Clorety recalled. "There weren't very many clouds in the sky."

To the professional investor, a falling stock also can be a buying opportunity. But Lew Sosnowik, a stock trader at Koonce Securities in Rockville, said he has yet to see much enthusiasm by local customers for bargain hunting.

Sosnowik recalled the old trader's motto: "Buy when they cry, sell when they yell." Customers have done lots of crying as they sold their losing stocks, but Sosnowik said he has yet to hear them yelling for cheap shares.

..................THE 10 SHARPEST DECLINES.................

NAME.............................PRICE.....PRICE.......PCT.

...................................1/1.....11/20.....CHANGE

Trustbank Savings F.S.B. ........$6.00.....0.62 1/2...... 89.6

Perpetual Financial Corp. ........7.13......0.86...... 87.7

John Hanson F.S.B. ...............2.88......0.44...... 84.8

Investors Financial Corp. ........4.50......0.75...... 83.3

MNC Financial Inc. .............22.12 1/2......4.00...... 81.9

Second National F.S.B. ...........6.50......1.50...... 76.9

Columbia First Bank .............14.00......3.38...... 75.9

Piedmont Federal Corp. .........14.12 1/2......3.50...... 75.2

Ameribanc Investors Group.........8.25......2.50...... 69.7

Signet Banking Corp.............32.12 1/2......9.75...... 69.7

SOURCE: Associated Press-Media General Financial Service.

..............10 OF THE SHARPEST DECLINES..................

NAME.............................PRICE.....PRICE.......PCT.

...................................1/1.....11/20.....CHANGE

NVR L.P..........................$5.00.....$0.31...... 93.8

Iverson Technology Corp.........3.62 1/23......0.50...... 86.2

Microlog Corp.....................9.50......2.00...... 83.3

Tempest Technologies Inc..........2.13......0.44...... 79.5

Jiffy Lube International ........18.80......4.75...... 74.7

USF&G Corp.......................29.00......8.00...... 72.4

Marriott Corp...................33.37 1/2......9.88...... 70.4

WorldCorp Inc....................13.25......4.00...... 69.8

Insituform East Inc..............6.37 1/2......2.00...... 68.7

Interstate General Co. L.P........7.25......2.50...... 65.5

Jiffy Lube International's stock price was adjusted after a 10-for-1 reverse stock split on 9/11.

SOURCE: Associated Press-Media General Financial Service.