Bear Stearns’ Implosion Crushes Bill Miller

Will the decline today in Bear Stearns put Bill Miller out of business?

Probably not, but no other mutual fund manager could keep their job after putting fund shareholder through this sort of pain. His latest streak in the Legg Mason Value Trust fund has been perhaps the worst I have ever seen on the buyside..

Miller made a case for financial stocks in November, but was clearly wrong. He enjoyed a brief respite when Yahoo! traded up in the wake of Microsoft's buyout offer, but has trailed the market nearly every week over the past year.

Countrywide Financial has killed him over the past six months, but this week two of his top 10 positions, Aetna and Unitedhealth Group, were roughed up as the stocks traded down in sympathy with problems at Wellpoint.

But the coup de grace was delivered today by Bear Stearns. Miller has seemingly found his way into every big-cap disaster, and Bear Stearns is merely the latest debacle in his portfolio. Legg Mason had built a large position in Bear, and the implosion left him trailing the S&P 500 by 140 basis points today; Value Trust is now down 24.54% for the year.

Value Trust's Morningstar rating is down to one-star. The star is indicative of the fund's past performance. But their party line has not changed, and they are sticking with Miller and Value Trust:

Greg Carlson, mutual fund analyst for Morningstar, says that the recent troubles hurting performance at the Legg Mason Value Trust do not diminish Bill Miller’s skill as a manager....."His record is too good,” Carlson said in a radio interview with Chuck Jaffe, MarketWatch senior columnist, noting that Miller’s value bent has had him out of sync with the market but is likely to do well when the market turns. Marketwatch

Christine Benz is sending out the troops to delver the news; she might want to take some of the responsibility for the stubborn stance Morningstar has taken. Benz owes her career to hitching her star to Miller, and they certainly appear loathe to recommend dumping Miller’s fund.

Clearly Miller has no plans to rotate into different sectors, and to do so now might prove suicidal if the market comes around to his way of thinking. But redemptions are likely to force Miller into selling stocks each and every day.

Nothing short of a miracle will revive his fortunes.  The rank against his peers is abysmal. Would you believe 99th percentile today? How about 99th percentile this week, one-month, year-to-date and three month.

And 99th one-year numbers. But it gets worse. His three years numbers are 100th percentile, dead last.

His 10-year just fell out of the top quartile. But it does not matter, the money is draining quickly from Baltimore. And while Bill’s numbers will eventually turn, there might not be any money left for him to manage when it happens.

Thankfully Morningstar has sober advice elsewhere. They are rapidly expanding their publishing efforts, including video, and should soon put a stake through through the heart of their main competitor, Value Line. Check out their take on Bear, and see what they think will happen next week to the firm.
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UPDATE: After beating up on Bill for well over a year we changed our tune: Yeah Baby It’s Miller Time
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Morningstar on Bear Stearns

Stick with Bill Miller
Marketwatch

Bad stretch doesn’t diminish Bill Miller as a manager
MarketWatch Podcast
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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