Bill Miller’s Second Quarter Commentary Is a Big Joke

Bill Miller might be a stand up guy, but his feeble attempts at humor are not going down well at this address. Bill has just turned in perhaps the worst run in modern mutual fund history, routinely turning in 98th percentile performance day after day, for weeks on end.

But now he is dusting himself off, and wants your money. At long-only shops every day is a good day to buy, and bottom decile numbers are a fertile source of humor, especially if it is not your money that has been incinerated:

A group of us were standing around a few weeks ago when Warren Buffett wandered over. Chris Davis had dubbed us the Value Support Group, as we all adhered to that approach to investing. We were commiserating over how badly we had done in this market, how valuation appeared not to matter and had not for the past couple of years, how it was all about momentum and trend, and how we were all losing clients and assets over and above our losses in the market. It seemed like we needed a 12-step program to cure us of our addiction to buying beaten-up stocks trading at large discounts to our assessment of their intrinsic value.

Mason Hawkins said, “Warren, I’m an optimist. I think this whole thing can turn quickly, and surprise people. Are you an optimist?” “I’m a realist, Mason,” the sage replied.

Warren went on to say he was optimistic long term, and backed that up in a talk the next morning on the remarkable history of growth, innovation, and wealth creation the U.S. had produced over the past 200-plus years. He also offered a sober assessment of the current challenges we face, and said it would take some time to work through them.

He then made the perfectly sensible point that as we are all net savers, we should be happy if stock prices declined a lot more, so we could buy even better bargains. That is a point Charlie Ellis elaborated on in his fine book, Investment Policy, a few years back. As a matter of logic, it is irrefragable. As a matter of psychology, I think most of us value investors think we have plenty enough bargains already, and may not be able to handle that many more. Or more accurately, our clients may not be able to.

We are value investors because we are persuaded of the logic of buying shares of businesses when others want to sell them, and we understand that lower prices today mean higher future rates of return, and high prices today mean lower future rates of return.

The best time to open an account with us has always been when we’ve had dismal performance, and the worst time has always been after a long run of excess returns. Yet we (and everyone else) get the most inflows and the most interest AFTER we’ve done well, and the most client terminations AFTER we’ve done poorly. It will always be so, because that is the way people behave.

After losing billions in Bear Stearns. Freddie Mac, Merrill Lynch, United Healthcare and the homebuilders, and seeing billions more leave as investors caved in and redeemed their shares. Now Bill is making his case, and thinks you should send him a check.

While I am impressed with his list of powerful friends, I am not partial to name droppers. 

For years now I have punched up mutual fund tickers at 6pm as the daily numbers are revealed, and have never seen a manager turn in such an abysmal performance. In the last 18 months Bill has completely trashed his longer-term performance record, and unless you cut him a check prior to 1996, you are probably not too happy.

Bill needs to rebuild his asset base to regain his mojo, and selling his yacht is probably not on the table, although he will rent it out. He wants your money, and has a good point.

His stocks are probably a buy, finally, but you can play a bounce without sending him your money.

No mutual fund manager in history has survived the axe after putting these kind of numbers on the board. Unless, of course, his name was on the door.

And while he has lost billions, he has lost something more precious. 

The respect of his peers.

Bill will make the rounds, hat in hand, but do yourself a favor.

Just say no.
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Bill Miller/ Legg Mason Commentary
2Q 2008
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The content contained in this blog represents 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. No Position

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