Bill Miller, the stock-picking wizard behind the Legg Mason Value Trust Fund that has outperformed the S&P 500 index for 15 -- yes, fifteen -- consecutive years, is finally eating a little exhaust. This year, the 500-stock index (which will likely finish up more than 14% year-to-date) will outdistance Miller's fund by a wide margin, thanks to the fund's precipitous summer swoon.
Concerns are mounting that Miller, whose fund's sheer size is limiting its flexibility, might have reached the end of the golden path. Investors can't help but overwhelm a good thing, and Miller's success with contrarian plays has garnered so much attention that whatever he does can convert contrarianism into mainstreamism. He made some bold moves in tech bellwethers Yahoo! Inc. (NASDAQ: YHOO), eBay Inc. (NASDAQ: EBAY), and Amazon.com Inc. (NASDAQ: AMZN) that didn't play out, and he placed a lot of faith in homebuilders when the softening housing market sent many to the cashier.
But most investors who've ridden this far with him are reluctant to jump off the gravy after one poor year (which, really, was only a poor four months). The fund has outperformed the S&P's torrid run since August, and many of Miller's current holdings -- such as UnitedHealth Group Inc. (NYSE: UNH), Aetna Inc. (NYSE: AET), KB Home (NYSE: KBH), and Pulte Homes Inc. (NYSE: PHM) -- seem poised to rebound from their lower valuations and enjoy a solid '07.
Too much is being made of the end of his 15-year streak. It's an abstract idea based on an arbitrary 12-month cycle. Miller has a basket of goodies and a boatload of momentum heading into the new year. Anyone who cashes out on him now is nuts.
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Reader Comments (Page 1 of 1)
12-30-2006 @ 11:15AM
Visible Investing said...
Bill Miller's amazing track record?
Bill Miller is truly one of the greatest investors of all time. According to Bloomberg...
- Miller's Legg Mason Vakue Trust fund has beaten the S&P 500 every year since 1991
- It achieved an average annual rate of return of 15.8% compared with 11.9% for the S&P 500 benchmark
- Miller's fund grew from $750 million of assets in 1990 to over $21 billion in 2006
- Manu Daftary, who has the second-longest streak of beating the S&P 500 at eight years, is also struggling - up only 5.6%
How does the Visible Investor see this performance?
- Beating the market is not easy or probable - only 2 professional managers out of thousands have done it consistently for 8 years or more
- Year to date, Bill Miller's Legg Mason Value Trust was up 6.4 percent, trailing the 14% percent gain of the S&P 500
- Most people recognized Bill Miller's outstanding performance in the past 5 years, missing most of the big gains over the 15 year time frame
- If you took away his 3 best years of market beating performance, his results would be only slightly better than the S&P 500
- If you were one of the investors that got in over the last 5 years, you would have under-perfromed the market
- Shares of Legg Mason (the public investment company that Bill Miller works for) have declined 20 percent this year in a market that rose 14%
- The second longest winning streak is only 8 years
Seeing the future...
* As indicated by the facts above, their are very few professionals that consistently beat the market, and there is no reason to think that will improve in the future.
* If the professionals with all their resouces can't beat the market, there is little chance that the individual investor can either beat the market or pick a fund that can.
* The individual investors best investment is to buy the market in a low cost index fund, where he would have beaten Bill Miller (and 94% of professional and individual investors) over the last 5, 3 and 1 year periods.
If you'd like some Visibility into your portfolio, find out more about VisibleInvesting.com.