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Stock Strategist

2008 Creators and Destroyers

We look at changes in market capitalization across the board in 2008.

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2008 was a terrible year for stocks. The S&P 500 was down 38% as the general economy slipped deeper into recession. This result begs for analysis--who were the real winners and losers of 2008? As we have done for the last few years, we've tracked the changes in stock market values to derive our value creators and destroyers for the year. To figure the market cap for both Dec. 31, 2007, and Dec. 31, 2008, we took year-end 2007 shares outstanding, adjusted for splits, and multiplied it by the share price at both dates.

There are plenty of weaknesses in this simple method that are important to recognize when interpreting the results. Our method does not account for market-capitalization gains from share issuance--including floating a secondary offering or acquiring another company for stock. However, our method does track if an acquisition was dilutive to the existing shareholders. Our methodology also does not adjust for share repurchases, which means we might overstate the current market cap (this can been seen in one of this year's creators,  McDonald's (MCD)). On the flip side--because we require a share price at the beginning and end of the year--any stock that went out of business and was delisted from the New York Stock Exchange or Nasdaq would not appear. Finally, as a result of looking at total market capitalization, large-cap stocks tend to dominate the results. However, even with all the limitations stated above, we believe this is the best method we can come up with to show what happened to any investor who held on to these stocks all year. We hope you also find this exercise informative.

The Results

 Gains and Losses by Market Cap
 

Market Cap on
12-31-07
( $MM )

Market Cap on
12-31-08
( $MM )
Change
( $MM )
Change
( % ) 
Mega (>$100 billion) 6,538,921 4,414,841 -2,124,080 -32%
Large ($10-$100 billion) 14,149,732 8,518,690 -5,631,043 -40%
Mid ($1-$10 billion) 6,480,897 3,383,412 -3,097,485 -48%
Small ($100MM-$1B) 1,541,356 698,627 -842,728 -55%
Micro (<$100 million) 212,002 55,277 -156,725 -74%

This year was more about minimizing losses than making money. None of the size-based categories came even close to break-even. Although once again, it appears that an investors would have done better, on average, the larger the company they bought. Mega-cap names lost only 32% of their value, while micro-cap names lost 75%. We note that the results are based on year-end market capitalization, which tends to skew the losers down to lower categories.

Interestingly, the same investors would have had a better chance of picking a winner if they picked within the smaller capitalization lists. Overall, of the 4,736 names in our screen, only 428 were winners on the year. Only one of the mega-cap names (3.4%) was a winner ( Wal-Mart (WMT)). An investor's best chance of randomly picking a winning stock was in the small-cap bucket, where 251 of the 1,773 (14.1%) names were winners. However, even among the winners, it was rare to find anything that earned more than a 10% return.

 Sectors by Market Cap
 

Market Cap on
12-31-07 ( $MM )

Market Cap on
12-31-08
( $MM )
Change
( $MM )
Change
( % )
Utilities 750,756 516,411 -234,345 -31%
Software 933,228 563,766 -369,462 -40%
Media 943,674 533,701 -409,973 -43%
Consumer Services 1,441,348 998,763 -442,585 -31%
Business Services 1,228,502 741,844 -486,658 -40%
Health Care 2,657,108 1,996,768 -660,339 -25%
Consumer Goods 2,613,374 1,696,407 -916,967 -35%
Telecom 2,520,687 1,562,542 -958,145 -38%
Hardware 2,083,203 1,102,525 -980,678 -47%
Energy 4,374,522 2,592,684 -1,781,838 -41%
Industrial Materials 3,836,615 1,951,851 -1,884,763 -49%
Financial Services 5,462,656 2,776,042 -2,686,614 -49%

 

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Jaime Peters does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.