I sympathize with Bill Miller; no one likes to have a losing streak. That said, by my calculations, he is now behind the S&P 500 over the last ten years.
I want to offer a simple explanation as to why Bill Miller has done so poorly recently. First, he has bought growth companies — companies where the valuation is critically dependent on future earnings growth. Think of Amazon (a success) or Yahoo (a failure). Second, he avoided cyclical companies that benefit from global economic growth, that is, energy and basic materials.
Bill Miller did well in the era where he used simpler valuation metrics, before he moved onto metrics that demanded more from future growth of earnings. Since that time, he has underperformed, and deservedly so. He has neglected the core idea of value investing, which is the margin of safety. By buying companies that will get crushed if growth targets are not met, he has invited his own troubles.
And, for someone who prizes deep thinking, I’m afraid he missed the forest for the trees. (Tsst… MM is a bright guy, I like reading him, but what does he really add?) Better to spend a little time looking at the world, and adjust the investing accordingly, than to insist that a bunch of US-centric growth companies will outperform. Cyclical growth is real growth in this environment.
I hope Bill Miller turns it around because many friends of mine are part of the Baltimore money management community. As Legg Mason shrinks, so do opportunities here. But to turn it around, it means a return to down and dirty value investing, and an eye toward analyzing what sectors will do best from a global context.
Because only value works, right?
I think the point of the post was that Miller is a good as a value guy, not a growth guy. Not value investing is the only type of investing that works.
Regards,
TDL
Bill,
I think only value works …. over the long term. It makes no sense to pay too much for a company whose growth may suddenly sputter. Now, “value” must include future prospects, not just current valuation.
Over the short term, lots of other approaches *can* work, including that heathen TA voodoo (in which camp I usually include myself)
So much depends on time frame and risk tolerance. The value guys and the growth guys might as well live on different planets, as they have totally different expectations and biases.
great commentary sysin3
Thanks Paul,
I just think that there’s a lot of potAto – potAHto in investing. Goodness knows, I have done too much of that vacillating myself.
Bottom line, there are lots of ways to kill a gopher … and one must find one’s favorite skinning method. (still looking for mine
p.s.
If I ever win the lottery, I would want Merkel to manage a good chunk of it.
He’s careful, intelligent, gradual, and risk-averse.
Can’t ask for better than that.
…who is MM??
Bill Miller’s problem is arrogance — he cannot imagine himself being wrong — he merely assumes his timing is off and that the market will come around to his view eventually.
Read his writings — they scream of someone who can’t be wrong. Conviction is important for an investor but so is humility — understanding the balance between the two is key.
Kyle
Miller was never a real value investor. Period. His fund was “value” in name only. “Relative” value isn’t value. It’s like justifying high PE with low interest rates. Absolute value is a whole different game. Maybe cyclical growth isn’t “value,” but I suspect it turns out to be.