An Open Letter to Bill Miller

Dear Bill,

I hope you are well these days. I understand it’s been a difficult time for you lately, and I’d imagine you’ve had many sleepless nights. I trust that there are better days ahead for you. I hope for your sake, as well as for others who have trusted you with their money, that this is indeed the case.

When I hired you several years ago to manage a nice chunk of my retirement portfolio’s large cap allocation, I did so knowing that our investment philosophies are quite different. We view “value” in very different terms, but that was ok. I understood the differences, and I took the risk. I was actually quite pleased that my company’s 401K plan brought you aboard.

We had a great run, Bill. In fact, your streak began years before I hired you, and I certainly did not expect it to continue forever. After all, how many managers beat the S&P 500 Index 15 consecutive years? You did, Bill. But just like all streaks, yours came to an end. Unfortunately a very abrupt and painful end; more painful than either of us could have ever imagined.

When I hired you, I never dreamed I’d be writing you this letter. But after a great deal of thought, it pains me that I am hereby replacing you as my primary large cap manager. I can no longer take the risk that your investment process is indeed broken, or is no longer effective.

I know, Bill, every active manager hits bumps in the road, and the market environment has been extremely difficult. But your underperformance the past two years has gone way beyond normal market gyrations.

How is it possible that you are down 32% year to date, or 39% over the past year? Looking back, do you think that your positions were too concentrated in financials? Yes, Bill, I know hindsight is 20/20, and I sound a bit like Captain Obvious here, but Bear Stearns, Washington Mutual, Citigroup, Merrill Lynch, Freddie Mac, AIG, Countrywide? Where was your risk control? Was it deep conviction or wishful thinking on your part that financials would turn around? I know that what has transpired over the past couple of years in financials was essentially the perfect storm, but I hired you because I trusted that you’d be able to navigate even the worst market events. I certainly never expected things to turn out like this.

Unfortunately, your recent performance has been so devastating that it essentially renders your 15 year streak irrelevant. Over the past five years, you’ve underperformed the S&P 500 by more than 800 basis points…per year. Over the past ten years, you are under 90 bps per year. You have to go back to 1996 in order to find a multi-year period (through now) that you’ve outperformed. Guess I should have indexed large cap all along. My bad.

Unfortunately Bill, what many investors fail to understand is that average returns are meaningless. What truly matters is the time path of returns, i.e., the order in which returns occur. Your huge losses the past couple years all but wipe out the previous gains your shareholders enjoyed.

Finally, Bill, just a word of advice about where you are spending your time these days. I know you want the Yahoo situation to work out to the advantage of your shareholders, and you do hold a fairly large position in the company (4% of your portfolio). But are you devoting too much time and energy to this?

In closing, I can’t place all of the blame on you. I should have pulled the trigger several % ago. I admit I got too caught up in “Bill Miller: The Legend”.

Bill, best wishes for the future.

Regards,

Jon

Comments

[BNiz:]

I think that you should read 'The Warren Buffet Portfolio' and pay attention to the tables that show the annual performance of Munger, Simpson, Keynes and Ruanne. All of these guys underperformed the market in about 1 out of every 3 years, but in the end convincingly beat the market. You're a performance-chaser...t... worst kind of investor...the type that no manager wants to deal with. I wouldn't manage your money if you begged me and I hope you lose the rest of your money too.

2008 Jul 22 10:42 AM

[logicalthought:]

A bit too much time on the "boat", perhaps:
www.powerandmotoryacht.../

2008 Jul 22 11:23 AM

[valueinvest...:]

I doubt his terrible performance the last few years is keeping him up at night. He is just another example of a guy who made a bunch of money for himself when times were good and lost a lot of money for everyone, but himself when times were bad.

2008 Jul 22 12:02 PM

[jackshack:]

That is why mutual funds are terrible. People treat even Bill Miller as more than a man. Overtime everyone succumbs to the law of averages. Warren Buffett will be no different. You cannot be scared to move to cash. I love how everyone thinks this banking thing is over. What happens when house prices continue to fall? 10%, 20%, 30%? What happens when all these lay-offs hit? What happens when consumers stop buying all this crap? Even if we get a short recovery here, things have to get worst. The government is growing the money supply in double digits. That will not stop especially after this mortgage bailout. More regulation, more capital requirements, more defaults, more bankruptcies, more bank runs. Its coming...

2008 Jul 22 02:21 PM

[Archman Inv...:]

Bill Miller is a joke. He is the perfect example of what it wrong with the mutual fund industry and the conflicts of interest that exist.

Bill Miller is actually a lousy money manager.
What makes a good asset manager? I will tell you. Someone who in bull markets atleast matches the averages % gain, and someone who in bear markets knows how to preserve wealth and hold on to those gains.
Bill Miller has proven he is able to make money ONLY in bull markets.
His streak of beating the S & P 500 was a joke. Sure he beat the market during 2000-2003, yet it was only by a couple of %. So essentially he lost just as much money as the index's, yet this is applauded by the likes of Morningstar and others who tout him a "legend".
I have one word for that :JOKE!

In retrospect BIll Miller is one of the worst fund managers ever to have managed money, and if anything, he was nothing more than as asset gatherer, not asset manager. Tell me, do any of you defending Miller have a few hundred million in the bank or a 85 ft yacht, like Miller has.
All from collecting management fees from losing people money over the long term. The value of Miller's fund is exactly where it was over 10 years ago. That is not a short stretch of underperformance as some have used to rationalize Miller's performance. That is pure mismanagement of the funds given to you.
Miller should be forced to return money to shareholders out of his own pocket, though I suspect the "legend" is not losing any sleep over his performance.

2008 Jul 22 02:24 PM

[kevinm:]

Bill Miller giving advice to Yahoo or anyone else is a knee-slapper! His performance for the YTD, 1 year, 3 years, 5 years and 10 years is abysmal. How does he have time to give advice to others?

He has no risk control mechanism. He obviously does not understand the companies in which he invests. How else do you load up on the home-builders and financials at MUCH higher prices, thinking they are "cheap"?

He has no concept of diversification, taking concentrated positions in these companies that he does not understand.

He has no sell discipline. Not only does he ride the losers down, but he buys more and increases the losses!

When Bill Miller gets fired, THEN it may be time to consider buying the financials--when the last person finally realizes the truth about the "legend" they will probably be near a bottom.

2008 Jul 22 11:13 PM