Although stocks have fallen like apples in a gale, there has been surprisingly little concern in public and even professional circles. Without panic -- the wholesale dumping of stocks as prices keep dropping -- a bear phase cannot come to an end. And (hats off to analyst Joe Granville who said "Sell everything" many months ago) the market certainly underwent at least an intermediate-term bear leg starting this summer.

One significant event that has to have occurred before this downward thrust can be considered to have ended is for the record high-margin borrowing -- some $15 billion -- to be pared. Usually, the amount of borrowing on margin falls off in the later stages of a bull market. But in 1981 it rose instead. Part of this rise was due to a developing consensus that stocks were the only speculative game in town. Bonds were shaky because of interestrate uncertainties, gold was droopy, and collectibles such as diamonds were turning back down. Another reason for growing margin debt was that in certain sectors -- mostly technology stocks and oils -- the lure of quick, almost automatic profits, was irresistible. Investors "went to the bank" to get in on the riches, borrowing heavily from their brokers.

But stock market bottoms never take place in an atmosphere of optimism, and rarely in an air of forbearance such as wafted over Wall Street in September. As far as finding a bottom goes, the more doom and gloom that abounds, the better -- odd lot short sales way up, the number of advisory services that are bearish vs. those that are bullish in the 70% range, and so on. One factor that could spark such widespread pessimism is for stockholders to have received margin calls, since, despite a 15% plunge in the Dow Jones Industrials from 1010 in June, few were scared on their own. Wholesale margin calls would bring out the jettisoning of stock that in other bear markets has taken place through sheer fright.

Inasmuch as, in this department's opinion, margin borrowing has become critical to the supply-and-demand aspects of this market, let's review some definitions. A margin call occurs when a customer who has borrowed money from a broker to buy stock no longer has sufficient collateral on hand to meet equity-to-loan requirements (as of this writing, the minimum ratio is 25%) because of falling values of stocks in the customer's account.The broker sends out a demand that the imbalance be corrected. The customer can deposit more cash, deposit additional securities with the broker, or sell some stock as a means of raising the ratio. (It ought to be a rule of thumb, by the way, not to answer a margin call with more cash; that just compounds the stubbornness involved in adhering to an obviously incorrect investment decision.) A broker can order your stock sold if you do not meet the terms of the call.

An aspect that margin customers sometimes are not aware of is that margined stock is held in "street name" by a broker (you cannot receive margined stock certificates in your own name), and can be loaned as delivery of stock sold short by that broker for other accounts.

Margin requirements also involve the dollar percent of a stock purchase that may be loaned by the broker. This varies according to the edicts of the Federal Reserve Board, which raises and lowers the amounts as a means of controlling the speculative nature of markets. Currently, the rate is a middle-of-the-road 50%. Not all listed stocks are marginable. Sometimes an exchange will rule that a certain security cannot be margined if trading in that stock has been hectic. And only some O-T-C stocks can be margined; lists of eligible O-T-C equities are published periodically. Further, there is a minimum market price that most brokers insist a stock must meet in order to be margined. Your broker will supply all the particulars.

Once margin holders are forced to sell, prices decline in a hurry. Margin selling at last shakes other holders from their torpor, until finally there are virtually no more sellers. That's one factor that leads to the establishment of a market bottom. It's not the only one, of course, but it would seem to be an outstanding one amid today's record-high borrowings.

No one knows for sure, of course, where a stock market decline might-ultimately come to rest. But here is a consideration: the price/earnings ratio of the Dow Jones Industrials. The decade's high of the Dow's P/E was set in 1971 at just over 18. Since then, the Dow P/E has bottomed out at around 6.2 -- once in late 1974 and again in early 1980. P/Es in general may not be significant, but the interesting thing is that both low marks were registered prefatory to an extensive bull market. With the Dow around 860 this September, its P/E was 6.7. If the same relationships hold, to get the Dow down to a P/E of 6.2 would bring it to somewhere around 796.

This level in the Dow is not outside the realm of possibility for this fall's bear market. But looking for 796 DJI on the basis of a triple bottom in Dow P/Es is putting fragile eggs in one rickety basket. Still, the idea has a fascinating historic precedent.

But the Dow does not define the whole stock market. Empirically it has been observed that about one-third of all stocks will start rising before the Dow hits bottom; the rest will come along later. What should be watched by studious investors is the advance-decline line of the Dow. This line -- the cumulative difference between Dow rising stocks and Dow falling stocks -- has been trending downward since as far back as August 1980, even while the Dow kept on struggling upward until June of 1981.This divergence (as technical analysts call such bifurcations of trends) was one of the earliest warning signals that the market had no intention of bursting through to the all-time highs that some observers predicted. If the Dow's A/D Line turns upward, that would be a good sign of the return of internal market health. Selective buying (though not necessarily of the 30 Industrials) could certainly be undertaken at that time.

One repeated reason (besides interest-rate expectations) why stocks have been so tedious of late is that with 18% return available elsewhere in relative safety, there is no particular demand for equities. That makes sense to a certain point -- namely, that most companies don't have the capacity to increase their earnings, and hence the prices of their shares on the exchanges, by more than that amount.

However, as has been shown in previous INC. studies, many others do have that capacity. An investor should recognize that even with prices slashed in half or worse by the shakeout of mid-1981, a lot of situations still bore a year's profits of over 20%. For example, from some familiar names in INC:

C3 went from 14 1/8 to 25, but despite a decline (as of mid-September) to 19, it racked up a gain of 36%. Chem-Nuclear, with a low of 20 and a high of 43 1/4, gained 65% even after coming back to 33. CPT went from 9 1/8 to 21 7/8 and back to 16 3/4, for a post-decline profit of 84%. Cullinane Database went from a low of 25 7/8 to a high of 68 3/4, then down to 47, gaining 82% at the end. Dysan started at 14 3/4, peaked at 31 3/4, and fell back to 19, still posting 29%. Evans & Sutherland hit 18 for a low, 39 for a high, and declined to 25 3/4, for a profit of 43%. Floating Point Systems was 11 1/4 low, 29 5/8 high, with a drop to 17 1/2, gaining 56%. Jhirmack, similarly, 6 1/8, 14 1/4, 11 -- 80%. NBI, 17 3/8, 40, 26 1/4 -- 51%. Nutri/System, 8 5/8, 22 7/8, 15 3/4 -- 83%. Reeves Communications, 12 3/4, 35 1/4, 25 -- 96%. Safecard Services, 6 1/4, 24 3/4, 11 3/4 -- 88%. Sykes Datatronics, 6, 27 1/2, 17 3/4 -- 196%. Survival Technology, 4 1/4, 9 3/4, 7 3/4 -- 82%. Tandem Computers, 15 1/2, 34 5/8, 25 1/2 -- 65%. Verbatim, 12 1/2, 30, 23 3/4 -- 90%.

To be sure, this list is selective and does not necessarily represent the staying power of smaller growth companies in bear markets. Many other suffered severe market losses. But neither is the list all-inclusive of profits that remain impressive despite hefty drops in market indexes, including INC.'s own (see page 134). It does stress two important notions. One, that to stay away from stocks because you can get 18% or 20% somewhere else is to turn your back on gains that can be far better than in any other investment arena. And two, that, once again, small emerging growth companies, despite their chanciness and volatility, can actually be conservative, rewarding investments. It's a matter of selecting the right ones.

Easier said than done, perhaps. But doable, nonetheless.