Is Bill Miller Losing His Touch?

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 ….”

Comments

[andrewh10]

Bill Miller has seemed to have got caught drinking his own cool-aid by averaging down on toxic financials like CFC and BSC. The bubble of searching for extra yield over the last decade through financials is now over and its times like these where the firms have to pay the piper. We will be in the end game for quite a while as these firms now cut down to the bare bones (layoff massive amounts of employees, desperately try to raise money, cut dividends). Unfortunately socialist FED policies will make matters worse in the future. The underlying b/s risk as well as the dilution situation makes a good reason to avoid the sector for awhile (6-12months). It might be tempting to buy banks now because they appear to be inexpensive on the surface (not yet from a pure book to value approach though) but in fact they should get a lot less expensive going forward. Even though these hot heads like Richard Bove at Punk Ziegel say load the boat. We have not even seen the first wave of chapter 11’s yet. Caveat Emptor

[fatcat]

I just can't get my head around these bank numbers,with the massive writedowns and all the bull**** retoric and left handed accounting...it could be 3-5 years before most are profitable,if then. Bove sounds like an idiot on cnbc.

[eric hart]

The difference between Miller and Buffet is huge: Miller doubled down on firms that destroyed shareholder value, while Buffet plows cash into companies deeply out of favor in the go-go 90's, but nonetheless profitable firms.

[AmesTiedeman]

This man lost his touch. He invested in some real winners and then a string of just dogs. He thinks CFC is worth 20?? Go tell that to BAC.

[archman82011]

I would like to post a repeat, of the comments I put up last week, with regard to the other Bill Miller article. BTW this post could also apply to someone like Jim Cramer as well. Please read on:

Bill Miller of Legg Mason is a perfect example of what is wrong with the mutual fund industry and all the conflicts of interest.

He is actually a lousy money manager who got "lucky" by managing money during the greatest bull market of the 20th century, and with the help of companies such as Morningstar, they made him out to be some genius.

During bull markets any jackass can beat the market.

It is during bear markets or not so good markets that truly good money managers excel. Bill Miller's Legg Mason Value Primary may have beaten the S & P during the 2000-2003 bear market, however it did by just a hair each year. Meaning Miller essentially lose 40% of his clients money over that time period while getting paid MILLIONS of dollars.

That is not money management. How many of you out there have that 100 foot yacht, and a bank account worth 100 million from collecting fees from the money you manage, regardless if you are a lousy manager?

Bill Miller got lucky betting on a few stocks at a time and that works in bull markets. It is becoming obvious thru the previous bear market and today's lousy market that Bill Miller's "fame" is nothing more than hype, enabled by the media and Morningstar.
Bill Miller's Value Trust is exactly where it was around 1998. Thats right, he has been paid millions over the past 10 years and essentially those in his fund have made nothing, unless you were lucky enough to get in, in 2003. And even there he is on his way to breaching those levels. All that money he was paid and the fund has a 10 year annualized return of less than 4% which is less than a percent more than the
S & P 500 over the same period.

The man is given to much credit for a lousy job and should be "returning money" to investors out of his own pocket for his lousy performance.

[punk_ash]

Just wait some more time, and Bill Miller would have underperformed S&P since he started his fund. Time to give back to the market. Meanwhile, he has enriched himself. Where do we find such jobs and where do I sign up...

[bearfund]

archman, bull markets are an easy time to beat the market? I beg to differ. The only way to beat a bull market is to be even more irrational than the herd, which in recent times is hard to do. They bought pets.com in 1999, and they're buying up C and LEH now. You want that action? You can have it. I'll stick with CNI and STO. They deliver profits and dividends year after year and they do it by offering the market what it needs and wants. Since this bear started, plays like those have me beating SPX in every one of the last 8 months (since I got back in) and by 24% overall. Bear markets are rational markets; bulls are times to sit on the sidelines with CDs and a little SPY. It's no wonder Bill Miller is coming out a loser right now; he's holding garbage. Real value investors look at balance sheets and business models, not just yields.

[punk_ash]

bearfund,

Get real, you did not need Pets.com to beat S&P, slightly higher beta than the market would do the trick. Yes, it is comparatively easy to beat the market in bull markets, especially in the last 7 years, where even a 10% exposure to emerging markets would do the trick and the rest 90% in s&P.

[fxtrader07]

I would really question the notion of Miller offering insights into the thinking of a "value investor". While each and every value investor has had desastrous investments here and then, the value traps miller threw tons of money in are simply breathtaking - both from their number and from the sums involved. While financial stocks are not bad per se, they, and especially the banks, are the hardest stocks by far for value investors to properly assess and many of them usually shun bank stocks precisely for this reason most of the time (insurance stocks are a different matter)
that being said, most mutual fund managers act under enormous pressure by their investors to perform each and every quarter - which is the major ingredient for mediocre long-term performance. So it is pretty easy to blame the fund managers and the millers of the world for behaving exactly the way many investors want them to behave. the small guy who thinks that investing means holding something from January through August and choses his funds accordingly is to blame, too. The same applies even more to the pension fund investment committees and other institutional investors who call the fund management company up as soon as the fund underperforms a benchmark or the peer group by a few percentage points for a few weeks. They all deserve these poor returns Blaming fund managers for the short-sightedness of their own clients is like blaming politicians for populism while the electorate keeps voting for those who make the biggest promises of candy and lolipops

[kotika98]

all this brouhaha proves that as an investor, you must find promising managers before the fact, meaning by the time the guy is on the cover of Barrons for beating the market for 15 years in a row it is way too late! and there is no reason to get into why that may be so...

[User 68127]

LOL! Bill "value trap" Miller. Bill had a magic formula that said low PE always wins. Also, housing prices can only go up! Then, he got bored and started chasing some momentum, only he re-defined it as value. In other words, buy whatever is working, in addition to what has gone down. Both are price-chasing strategies. Both lack analysis. Both lack understanding of company and industry trends. Then he ignored prudent diversification practices by concentrating the portfolio. So he had no risk-control mechanism either. Then he ran around giving speeches and interviews until...the bottom dropped out for three straight years. The reputation is gone, but he still has his own money...never mind...the worst is over...

[User 217388]

I worked for Legg Mason for about 14 years. I really feel that Miller has lost his touch and ventured away from his value theory. Further, he has so much money under managemet(which he is losing rapidly through erosion and withdrawls) that he has stopped paying attention. It's my understanding he was giving a "lecture" when Bear Stearns blew up and knew nothing about it. Their CFO Tal Daley is a butthead who gets pieces of information form the half dozen or more newspapers he reads and fancies himself a genius. I wouldn't let him manage a fruit stand. By the way he sold aload of stock in June of 2008 for "tax reasons" Both should resign before the shareholder revolt... Chip Mason should have stayed on board in a larger capacity.His leaving cost everybody a ton of money.