Mutual-fund star Bill Miller beat the S&P 500 index for 15 straight years from 1991-2005, but his Legg Mason Value Trust Fund is what’s taking a beating these days. Over the past year, it’s down a whopping 23.9% -- thanks in large part to the 19.2% plunge in the first quarter of 2008 (the worse quarter ever for Miller relative to the benchmark). Investments in Countrywide Financial and Bear Stearns played a role.
Recent underperformance has erased much of the outperformance of previous years. Taking the past ten years, for example, Value Trust has returned 3.9% annually, compared with 3.5% for the S&P 500.
The efficient market theorists might be rubbing their hands with glee. The coin flipper’s lucky streak is reverting to the mean, on its way to no better than market performance. Miller’s quarterly report would have us believe otherwise. Released last week, it’s full of the “wait for the rebound” message. Here are some excerpts on that theme (which also give, incidentally, some insights into the mind of a value investor):
“While neither I nor anyone else knows if our period of underperformance is over, it ought to be, if valuation begins to matter more and momentum less in how the market behaves ….
Every investor goes through periods of poor relative results. Remember the Barron’s cover story on whether Warren Buffett had lost it in the tech-driven market of the late 1990s ….
When prices move against us, it usually means that the gap between price and value is growing, and our future expected rates of return are higher ….”