Bill Miller, Legg Mason Value Trust's manager, used to be a good investor but he's outlived his usefulness in that role. Legg Mason (NYSE: LM) has kept him on for too long and if it doesn't give him the hook fast, he will sink the company. The problem? Miller's success has gone to his head and he can't adapt.

This phenomenon is quite common. It's called confirmation bias -- the tendency of decision-makers to seek out information that reinforces their views of the world and to reject information that challenges those views. This is particularly common among those who have been successful. They think that they have figured out a winning formula and when it stops working, they blame everyone but themselves.

This came to mind as I read a CNNMoney story on how Miller's fund has lost 34% of its value since last July. Miller had been famous for beating the S&P 500 every year between 1990 and 2005. But his methods have failed him since. And investors have yanked $2.4 billion from Legg Mason which CNNMoney notes, reported a second quarter loss last week.

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."

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.

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.

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.

Bill Miller, the famed Legg Mason fund manager, was on television last week. He said he is long on housing stocks.

In Barron's Up and Down Wall Street column (subscription required), Doug Kass of Seabreeze Partners said he was short housing stocks - no big surprise there. Kass referred to order cancellation as the reasoning for his bearishness.

Typically, publicly traded homebuilders have cancellation rates of 15% of orders. However, that number has jumped considerably. Cancellation rates of publicly traded homebuilders:

• Centex (NYSE: CTX) - 37%
• DR Horton (NYSE: DHI) - 40%
• KB Homes (NYSE: KBH) - 53%
• Lennar (NYSE: LEN) - 31%
• Pulte Homes (NYSE: PHM) - 36%
• Beazer (NYSE: BZH) - 57%
• Hovnanian (NYSE: HOV) - 35%
• MDC Holdings (NYSE: MDC) - 49%
• Standard Pacific (NYSE: SPF) - 50%

These numbers (from the Barron's article) are so bad that the worst might be unfolding right now.

TheFly's advice, Miller tends to be too early and Kass is often too negative when the worst is already priced in the stocks. I'd say, start following these stocks again, expecting a bottom in the spring and early summer.

The most recent rally is mostly from an oversold condition. I'd wait for another correction and see where the industry fundamentals stand.

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.

Bill Miller, one of the world's greatest money managers, had his worst year in over a decade. His investments in eBay Inc. (NASDAQ:EBAY), Amazon.com Inc. (NASDAQ:AMZN), and Yahoo! Inc. (NASDAQ:YHOO) killed his performance in 2006. But, he justified his Yahoo! holdings by saying the stock could go from its current $26 to $40 next year. Maybe his grief over losing all that money has clouded his judgment.

Miller thinks that Yahoo!'s new search technology for advertisers, the so called Panama Project, will drive both the company's earnings and its stock price. He has not made it clear why he thinks any advertisers would switch from Google Inc. (NASDAQ:GOOG), which has almost the entire market and a product that works remarkably well.

It is also worth noting that in the November comScore numbers on Internet audience, News Corp.'s (NYSE:NWS) Fox Interactive passed Yahoo! to move into first place for total pageviews. (Fox Interactive pageviews include MySpace of course.) Yahoo! shareholders cannot be too happy about that. Google also made big strides forward as seen in the study.

Maybe Yahoo! should sell Panama back to the Panamanians.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Late last week, the legendary mutual fund manager, Bill Miller, published his quarterly report to shareholders of Legg Mason Value Trust (LMVTX). For each of the past 15 years -- despite much tumult -- he has beaten the S&P 500.

Although, as for this year, his performance has been subpar (but, hey, there is still time left for him to make a comeback). Nonetheless he says he is "somewhere between bullish and very bullish."

OK, so what stocks is Miller focused on?

He only mentioned one: Amazon.com, Inc. (Nasdaq: AMZN). Keep in mind that Miller is a well-known intellectual, who routinely quotes obscure authors, scientists, and philosophers when describing his analysis of stocks. In other words, might he be interested in Amazon.com because he's a big-time customer?

Perhaps. But Miller thinks that Amazon.com has a powerful business model -- which is likely to see increased operating margins. If correct, he thinks investors will get an "excess return." Yes, with phrases like that, he is definitely the intellectual type.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.

Who wouldn't want to follow in the footsteps of this century's great investors? SmartMoney tries to give its reader that opportunity in its August cover story profiling the likes (and the stock picks) of Warren Buffett, Bill Miller, Chris Davis and others.

It's a fascinating read and one that left me chomping at the bit to go invest my spare cash. Sears Holdings (SHLD), Merck (MRK), and News Corp (NWS) were the names that caught my eye. If I had any spare cash I would probably be doing some buying rather than writing this blog post. But since I don't, I'll instead enumerate the reasons why it may not make sense to follow the stock picks of the pros:

• They bought back then, but would they buy now? You just don't know. Buffett bought ConocoPhillips, General Electric (GE) and United Parcel Service (UPS) in the past year. But has he held onto them? Did he buy for reasons that have nothing to do with his view on their long-term potential (that's always a possibility with Wall Street pros)? My guess is the answer is "no" to both those questions, but we just can't be sure what Buffett was thinking when he bought and if he'd do the same thing today.
• What if they are due for a cool streak? Bill Miller has been an investing phenomenon, beating the S&P year after year. Some academics would argue that it's pure luck. The article points out that his bets on United Health Group (UNH) and Aetna (AET)aren't looking so good and a couple of his August cover picks -- Yahoo and Dell -- have stumbled badly lately. But Sears Holdings (SHLD) sounds like a decent idea to me.
• Are they playing it safe? Christopher Davis picks Wal-Mart and Microsoft. Those sound like fine choices for the core of a portfolio, but I doubt they are really his best ideas. News Corp (NWS), his third idea sounds like the smartest to me. And the stock is doing terrific this year.

The article is well worth reading and if you are looking for some good ideas, this is a great place to start. But just as with any investing article, it should just be the starting point for further research.