Carl Icahn just got more bad news. His bid for Yahoo! (NASDAQ: YHOO) seems to be losing it momentum, and it should. Legg Mason, which owns 4.4% of the portal company, will support the current board.

According to The Wall Street Journal (subscription required), "We believe the current board acted with care and diligence when evaluating Microsoft's offers," Legg Mason Chairman Bill Miller said.

Other large investors may decide to back the status quo ahead of the Yahoo! Annual Meeting on August 1.

Icahn has made two significant mistakes. The first is that he overplayed his hand with Microsoft (NASDAQ: MSFT) by saying that he had more support from Steve Ballmer for a deal to takeover Yahoo!'s search business than he actually had.

The more profound problem is the Icahn has not taken the time or the effort to show Yahoo! shareholders how he would operate the company if he cannot strike a deal with Redmond. In essence, he has not made it clear how he can make Yahoo!'s shares rise from their current level if the company has to be run as a standalone business.

Icahn will lose his proxy fight for Yahoo!. He has not offered anything beyond a break-up or M&A event. Why would anyone support something so thin?

Douglas A. McIntyre is an editor at 247wallst.com.

Someone lost a lost of money as the prices of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) hit multiyear lows on news that several analysts believed the federal government would have to take the two companies over. In all likelihood, the move would wipe out common shareholder.

Famous stock-picker Bill Miller of Legg Mason (NYSE: LM) may have been one of the casualties. According to work done by Reuters, Legg Mason, Capital Group, AllianceBerstein (NYSE: AB) and Fidelity lost a total of $4 billion on the mortgage company stocks over the course of last week's trading.

While all fund companies may have been hit equally, which no one can know exactly at this point, Miller's reputation as a leading fund manager is being devastated. After years as one of the most successful portfolio managers in the country, his fund has underperformed the S&P for two years.

It looks like Miller is going for a third.

Douglas A. McIntyre is an editor at 247wallst.com.

Here is a novel idea. Big Yahoo! (NASDAQ: YHOO) shareholder Legg Mason thinks more investors would support Carl Icahn's effort to control the portal company if the raider will not sell out to Microsoft or anyone else for under $33. At $32.99 it's no deal.

Legg Mason's Bill Miller told Reuters, "The difficulty with Icahn is he'd have more shareholder support if he would say he wouldn't sell the company for less than $33."

Fair enough. One of the problems with hooking up with raiders is that they often fail. Microsoft (NASDAQ: MSFT) has already indicated it would pay $33 for Yahoo!. Why should shareholder take less?

Miller may be thinking of Icahn's recent deals to pressure Motorola (NYSE: MOT) and Blockbuster (NYSE: BBI) to improve "shareholder value". Neither one of those have done well. Investors who followed Icahn in have lost plenty of money.

Legg Mason's comment makes sense. "Put up or shut up:"

Douglas A. McIntyre is an editor at 247wallst.com."

Legg Mason Value Trust manager Bill Miller built his reputation -- and the fortunes of his investors -- by beating the benchmark S&P 500 for 15 years, a streak that ended in 2006.

But since that run ended, the fund has struggled mightily with bad bets on companies like Countrywide Financial (NYSE: CFC), Bear Stearns (NYSE: BSC), and Yahoo! (NASDAQ: YHOO). Now Miller's investors are questioning his philosophy, and so is is the legend himself.

A big part of Miller's brilliant track record was his belief in focus investing -- concentrating his bets on a few stocks rather than a bunch. The Legg Mason Value Trust holds just 35 stocks. But according to the New York Times, that strategy is now being reconsidered. Miller said that "The question we are asking ourselves is: Should we think more broadly now about probability, about high-impact events and protecting against them by having broader exposure to the market?"

I seriously doubt that that's the right strategy. Miller is universally acknowledged to be a great stock picker -- diluting his influence by building a portfolio consisting of his 200 best ideas instead of his 35 best sounds like a sure road to mediocrity.

The larger point is this: After a 15-year streak of greatness, Miller has hit a rough patch. Two years of underperformance doesn't change 15 years of greatness, and this is a bad time to consider changing the strategy that led to his track record.

Funny what happens when Microsoft Corp. (NASDAQ: MSFT) is breathing down your neck.

Yahoo Inc. (NASDAQ: YHOO) may be close to throwing in the towel on search. According to The Wall Street Journal, the Internet portal is in talks with Google Inc (NASDAQ: GOOG) about an advertising partnership.

The short-term test, involving a very limited percentage of Yahoo's Web search queries, "is designed for the two sides to evaluate the revenue potential of a broader search ad outsourcing arrangement," the paper said. "They have been discussing such an arrangement as part of Yahoo's pursuit of alternatives to Microsoft Corp.'s unsolicited acquisition offer."

This is long overdue.

Yahoo has wasted billions of dollars of shareholders' money chasing Google's tail in the search market. Its lack of progress in that area is the main reason why its shares have been beaten down by Wall Street and has attracted Microsoft's interest.

In other news, top Yahoo shareholder Bill Miller of Legg Mason Inc. (NYSE: LM) has criticized Microsoft for blundering with its ultimatum to the Internet portal instead of just raising the offer.

The ball now is in Redmond's court.

It's been a tough first four months of the year for Bill Miller of the Legg Mason Value Trust (LMVTX), famous for his 15-year run beating the S&P 500. Even after a 4.12% bounce in his fund's net asset value on Thursday, he's down 14.95% for the year. One major culprit? His stake in Bear Stearns (NYSE: BSC) that was once worth more than $200 million, making the fund one of the firm's largest shareholders.

According to the Wall Street Journal (subscription required), Miller's performance reminds him of his tough run that began the 1990s: "Back then, a similar crisis was unfolding in financial markets and Mr. Miller eventually swooped in to buy money-center banks like Chase Manhattan and Citicorp that he thought were underpriced, as well as insurance companies and mortgage lenders. Financials made up as much as 45% of Mr. Miller's portfolio by the mid-1990s, and helped drive his 15-year winning streak as they rallied over the years."

Mr. Miller told his fund's shareholders that "the past two years are a lot like 1989 and 1990," and there's a "reasonable probability the next few years will look like what followed those years."

Maybe so. But investors should be wary of the fact that a big part of Miller's outperformance stemmed from his exposure to financial stocks and now that same exposure is dragging his fund into the lowest echelons of mutual fund performance.

Is the Legg Mason Value Trust just a glorified bet on the bounce back in financials? If so, investors may want to tread carefully, as Miller has been wrong about the sector for awhile.

You know the old adage for success in the stock market -- buy low and sell high. Well unfortunately too many Americans today are doing the exact opposite as they seek coverage from a very volatile stock market. They bought when this market was near the top and are now selling in panic.

I prefer to watch two men who clearly know how to buy low and sell high -- Warren Buffett (also known as the "Oracle of Omaha" and Bill Miller, a very successful fund manager at Legg Mason, who is known for his 15-year winning streak against the Standard & Poor's 500 stock index.

So are they selling or buying? Both are buying and buying big. According to Sunday's Washington Post, Buffett upped his stake in Kraft Foods (NYSE: KFT), Johnson & Johnson (NYSE: JNJ), U.S. Bancorp (NYSE: USB), and Wells Fargo (NYSE: WFC). He also took a new stake in GlaxoSmithKline (NYSE: GSK). Buffett disclosed that he owns 132 million shares in Kraft, which means he owns 8.6% in the maker of Ritz crackers, Philadelphia cream cheese, and Maxwell House coffee.

Bank of America Corp.'s (NYSE: BAC) $4 billion acquisition of Countrywide Financial Corp. (NYSE: CFC) isn't sitting well with the mortgage company's biggest shareholder, Legg Mason Capital Management (NYSE: LM)

Legendary money manager Bill Miller, who raised his Legg Mason Value Trust fund's stake in Countrywide to 15% and could buy as much as a 25% interest, said in a letter distributed to the press that he was "quite surprised by the decision to sell the company at close to a seven-year low in the stock price, and agreeing to a bid that amounts to only 30% of book value." Predictably, Bank of America disagrees with Miller. A company spokesman told Bloomberg News that "we believe it is fair for both companies."

Bill Miller, the investment guru at Legg Mason Capital Management, has published a letter to his shareholders. Keep in mind that his firm is the number two owner of Yahoo! Inc. (NASDAQ: YHOO) shares.

So what's his take on the $44 billion buyout offer from Microsoft Corp. (NASDAQ: MSFT)?

Well, it should be no surprise that Miller thinks the offer is under the fair value. In fact, he says that it appears that Microsoft "had been prepared to pay over $40 per share previously."

That would certainly be nice for Miller's shareholders. But, is it realistic to expect that Microsoft will bid against itself?

If you follow growth and value investing gurus, you've probably heard of Legg Mason's Bill Miller. After 15 years of beating the S&P 500 index, the value investing champ is now in a two-year rut of trailing the index. What happened? All great things come to a change, so with another not-so-good trend under way, Mason is re-tooling some things to get back on track.

While I am a huge fan of growth investing and index funds, from international and emerging markets to REITs to small caps, I also pay attention to value funds and markets. With various industries and sectors, loading too much in one risks the potential for losing timing in another. Case in point: Miller's Legg Mason Value Trust (NASDAQ: LMVTX) was overweight in telecom and tech, and underweight in the energy sector in the last year or so, and that explains not beating the S&P 500.

How could such a seasoned manager miss the boat here? Like many of you, I've missed plenty of boats, and the man is only human. One of Miller's top 10 holdings is Amazon.com (NASDAQ: AMZN), which has seen a great rally this year, but still is overvalued once you consider the fundamentals of the company's financials.

The old Wall-Street adage of buying stocks when there is "blood in the streets" couldn't be more appropriate than now. With financial stocks getting pummeled every day, and home-builders in a slump of more than a year and a half, smart money is going to start loading up on these names. In fact, none other than investing guru Bill Miller, the veteran manager of Legg Mason Value Trust, said as much in a note to investors.

Regarding the financials, I know that dividends may get cut, that we may see the subprime mess spread to credit card companies, that we may see even larger write-offs in quarters to come. But I also know that these same institutions will be around five years from now, and they will be much leaner, more profitable operations than they are today. Financial giants like Citigroup (NYSE: C), Merrill Lynch (NYSE: MER), Goldman Sachs (NYSE: GS), and even E*Trade (NASDAQ: ETFC) are getting awfully cheap according to any normative ratio, and should be seriously looked at.

As for home-builders, I am aware that the real-estate market stinks, but I also know that the smart money is beginning to move into communities where prices have been the hardest hit, and they are buying up projects at $0.75 on the dollar. Look for companies like Toll Brothers (NYSE: TOL) to be attractive long-term investments.

Take a shot, let it sit, and check in three years and see just how much money you made.

Disclosure: Writer holds a position in ETFC. He has no other position in any stock mentioned as of 11/4/07.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com.

Amazon (NASDAQ: AMZN) closed at $93.38.

• AMZN overall option implied volatility of 45 is above its 26-week average of 39 according to Track Data, suggesting larger price risks.
  
• www.Amazon.com operates retail websites.

Borders Groups (NYSE: BGP) recently closed at $13.10.

• Dow Jones reported: "Spencer Capital Management LLC, which holds a 7.9% stake in BGP, said Thursday that it has asked the book retailer to add a person designated by Spencer to its Board."
  
• BGP over all option implied volatitliy of 48 is above its 26-week average of 37 according to Track Data, suggesting larger price risk.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

For some reason stock trading is still running rampant in the market despite all the evidence to the contrary that it is a bad idea. It is a bad idea to pay fees and taxes (or take losses, even worse) no matter how low because they eat away at your overall returns. It is a bad idea because the basis of the decision to buy or sell has little or no fundamental rationale except momentum, or charts, or news of the day, or analysts' calls, or a Cramer rant. But most importantly to me it is a bad idea because all of the most successful and wealthiest investors do the opposite -- Warren Buffett, Bill Miller, Eddie Lampert and Carl Icahn just to name a few.

Since history has proved over and over and over that day trading is a loser's game, why do it? The only reason I can think of is for the adrenaline rush. It's the sport of it. Just watch Cramer and you can see the crazed sports fanatic looking for a fix. He makes it exciting! He makes it an adventure! He needs something to talk about!

If he followed a process enjoyed by Buffett or Miller his show might be on the air monthly instead of several times a week. Instead of frantic or manic gyrations he would be making a few boring comments and calm suggestions about a few stock possibilities before encouraging his viewers to tune in next month. Cramer and other traders have built up business as a sport and as entertainment. But, if you want to get rich, follow the investors not the traders.

Poor Bill Miller. After seeing his Cal Ripken-esque 15-year streak of beating the market end in 2006, he's trailing the S&P 500 again in 2007. His investors at the $21 billion Legg Mason Value Trust were probably content to laugh off the end of his run, but another off-year in 2007 could raise some eyebrows. Is Bill Miller finished, some will ask? Or, can he make a comeback amid mounting pressure to deliver returns to shareholders?

When asked about whether his amazing run was just a fluke, Miller replied by pointing out that the odds of beating the market every year from 1991 to 2005 are about 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 U.S., so you never know."

I wouldn't give up on Bill Miller just yet. He's one of the greatest investing minds ever, and I would look for him to regain his form. And if he doesn't? Well then he just be another member of the 90% of mutual fund managers who don't beat the market.

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.