Legg Mason Global Asset Management is one of the largest asset management firms in the world. Assets under management as of December 31, 2010, were $672 billion (11th largest asset manager in the world). Fifty percent of these assets invested in fixed income securities and most of these (70%) are in the Americas Division.
Legg Mason Capital Management is one of its subsidiaries. It was founded in 1982, based in Baltimore. It specializes in long-term, valuation based equity management. Bill Miller is chairman and CIO of Legg Mason Capital Management. He graduated from Washington and Lee University with a degree in economics. Before joining Legg Mason in 1981, he served as treasurer of the J.E. Baker Company. Before the subprime crisis, he was one of the most famous and successful investment managers in the world. He was named by Money Magazine as “The Greatest Money Manager of the 1990s." Between 1990 and 2005 Miller had a phenomenal track record by beating SPY for 15 straight years. However, between 2005 and 2010, he underperformed the SPY except in 2009.
Bill Miller is a long term value investor. He says that:
We are value investors because we are persuaded of the logic of buying shares of businesses when others want to sell them, and we understand that lower prices today mean higher future rates of return, and high prices today mean lower future rates of return.
One hundred percent of a company's information reflects its past while 100 percent of its value reflects its future.
In a recent interview, Miller said, "I would look for a long-term orientation, and the evidence for that would be a relatively low portfolio turnover. In a world of 110% to 115% turnover, something in the 50% range or less - ideally in the 20% to 30% range - is what would make sense." During the last five quarters, he had owned 490 different stocks and half of them are long term investments. Also, 368 of those are still in the portfolio at the end of December 2010. As he suggested, he has a low turnover rate.
He thinks the U.S. economy is stronger compared to both developed and emerging economies and he is extremely bullish about the U.S. stock market. In mid November, Bill Miller said that U.S. stocks may rise 15% in the next 12 months because of the actions of the Fed. Since then, SPY returned around 7%.
During the fourth quarter of 2010 Miller bought $750 million in new stocks. Here is how these stocks performed since the end of December:
Company | Ticker | Value | Return |
UNITED CONTL HLDGS INC | 238415 | -6.9% | |
RESEARCH IN MOTION LTD | RIMM | 174054 | 4.7% |
GENERAL MTRS CO | 96570 | -14.7% | |
BLACKROCK INC | 63960 | -2.8% | |
ALLIED WRLD ASSUR COM | 38990 | 1.6% | |
BECKMAN COULTER INC | 24313 | 10.4% | |
BABCOCK & WILCOX CO NEW | 23968 | 19.5% | |
PETROHAWK ENERGY CORP | 20265 | 24.8% | |
DEAN FOODS CO NEW | 18978 | 11.0% | |
AIRCASTLE LTD | 18409 | 10.4% | |
QEP RES INC | 14046 | 7.2% | |
PENN WEST ENERGY TR | 11817 | 14.1% | |
YOUKU COM INC | 5792 | 31.4% | |
LUBRIZOL CORP | 3463 | 25.8% |
Bill Miller's largest new stock picks had a weighted average return of -0.3 % vs. SPY's 1.7% return. Actualy 70% of his new picks managed to beat the market. The main problem is he gave the highest weight in his portfolio to the worst performers. If he had simply bought equal amounts of each stock, then his return would have been 9.7%.
Miller bought Lubrizol (LZ) which is going to be acquired by Warren Buffett. Miller also bought Dean Foods (DF) which got a sgnificant boost from David Tepper's interest. He added several energy stocks which delivered extraordinary returns. He just didn't buy enough of them. Instead he spent nearly $100 million on General Motors. He isn't the only one who made that mistake (See the scores of hedge fund managers who bought GM during the fourth quarter).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
