Thread by @suru27

1/N Hi Friends, had tweeted a small analysis of 2008 meltdown analysis of wealth creation/destruction. This was the tweet:

https://twitter.com/suru27/status/1239997572019679232?s=20

Some of u asked questions on twitter and WA regarding sector, financials, list of companies etc. This thread is for all details

Approach:
2/N 1. Companies with more than 6 month of trading data available in each of year 2007 to 2011 considered.
2. Few companies got removed due to lack of financial information
3. A total 996 companies considered
4. Data has been taken from ace equity but not verified

3/N company by company
Here are the insights:
1. >82% companies fell by more than 60%
2. A handful of 4% companies fell < 40%

4/N
3. The sectors which had highest share of companies in highest bucket of fall (>60% fall bucket) were. Lets reverse it and say, few sectors which had relatively higher % of companies going through lower than 40% correction were: FMCG (33% companies), Healthcare (12%),

5/N Chemical (13%), Agri (11%) and Gas and Fuels (17% on a small base of 6 companies)
6. Auto, Aviation, Metals, Commodities, Oil& Gas, mining, Retail, Textile etc got heavily butchered.

6/N There was a strong correlation between ROCE and these 4 bands. The band with best mean

7/N ROCE had lowest mean correction and vice versa. Also, there was an inverse relation with P/B (due to heavy FMCG and Healthcare in low correction bucket).

7.Dividend yield was not a differentiation

8/N
Now, let us look at recovery post crash for these buckets. To replicate actual investment behavior and to normalize extreme top and bottom, the average price of 2007 topping year, 2008 bottoming year and 2011 (3 year post melt down) has been taken based on closing monthly

9/N return for each of these years. Below are returns for each of these buckets. 82% of companies (>60% correction bucket) gave negative return whether invested every month in 2007 or in 2008. this is CAGR +have and -ve return. Some of you had asked what if we invested in 2008.

Even if you invested in this bucket in 2008 every month post such massive correction, you would have made negative return.

10. The 40 to 60% bucket if invested in 2007 gave decent 13% return but if invested in 2008 gave equally good 20% return.

11. The best 2 buckets gave 20%+ return in all the scenarios. This means out of every 5 company, we could have found 1 company which would have generated 20%+ return on a 3 year CAGR basis.

12. Now, final thing. List of companies. Below are top 2 bucket 38 (3%) companies with their sector which fell <40%. Lot of well known names here but check their valuation. For example, Asian Paints for whole 2008 was available < 30 PE. Assuming 25 as mean, current PE is 2X

13. Last, list of some companies which led to wealth destruction, first from 2007 to 2008 and then while catching falling knife by average out etc.

Please share if useful. Also, point if there are any major data issues. Will try to cover 2003, 2013 in same way.