Bill Miller's letter to shareholders

While Legg Mason Value Trust manager Bill Miller's famed 15-year streak of beating the market came to an end in 2006, investors will still want to read his latest letter to shareholders. A rough year aside, he is still one of the greatest investing minds of our time. While he is considered to be a value investor, he has gained notoriety for investing in stocks not normally seen as value stocks, including high P/E stocks like Google. Some of the highlights from his latest letter:

My colleague Michael Mauboussin applied some of Gould's analysis to investing in Chapter 6 of his book More Than You Know. What are the chances it was 100% luck? There are two broad ways to look at it, one involving a priori, and the other a posteriori, probabilities. If beating the market was purely random, like tossing a coin, then the odds of 15 consecutive years of beating it would be the same as the odds of tossing heads 15 times in a row: 1 in 215, or 1 in 32,768. Using the actual probabilities of beating the market in each of the years from 1991 to 2005 makes the number 1 in 2.3 million. So there was probably some skill involved. On the other hand, something with odds of 1 in 2.3 million happens to about 130 people per day in the US, so you never know.

The book he refers to, More Than You Know is one of the better, more original investing books to come along lately. Order it with a copy of Robert Hagstrom's book Latticework: The New Investing. Here's another gem that was in the letter that I will certainly be adding to my list of favorite quotes about investing:

As I often remind our analysts, 100% of the information you have about a company represents the past, and 100% of the value depends on the future.

And he offers a strong case for how and why investors can do better than the market:

The market does reflect the available information, as the professors tell us. But just as the funhouse mirrors don't always accurately reflect your weight, the markets don't always accurately reflect that information. Usually they are too pessimistic when it is bad, and too optimistic when it is good.

Bill Miller's letters to shareholders contain some of the best insight into investing that can be found at any price. Use Google to find copies of his old ones, and be sure to read the new ones as they come out.