Bill Miller on Energy Stocks: "The Call is Much Harder From Here"

Here's the excerpt from Bill Miller's Q2 letter to shareholders of his Legg Mason Value Trust in which he discusses his decision not to own energy stocks:

...our continued lack of exposure to energy, which was the second best performing sector for the six months, hindered our performance during the period. This is another area we were clearly wrong about (isn’t hindsight useful?).

The call is much harder from here, with only scattered Stone Age tribes in the Amazon, the comatose, or newly arrived aliens from Alpha Centauri, unaware that energy stocks are a one way ticket to outperformance due to demand from China and India, the location of reserves in unstable areas, the lack of investment in new refining capacity, the rate of depletion, the dwindling ability to locate giant new fields, and so on. The only good thing about not owning energy is that disgruntled shareholders or clients who like our general strategy but think we are obtuse on this subject can create their own personal version of the fund by buying whatever energy exposure they think appropriate, thus creating an investment product that optimizes their utility function.

The Legg Mason Value Trust portfolio holdings as of June 30th, 2006 are here. Full letter here [PDF]. Legg Mason funds home page here.