Legg Mason’s Bleeding Continues, But Stock Bounces

Is it finally time to buy Legg Mason? The stock, not the funds.

The inevitable pile on against the company and Bill Miller have begun, which means my 18-month old obsession with Bill's fall from grace is probably long in the tooth. It seems the stock trades day-to-day in line with Miller's underlying portfolio, which is strange. While Miller might be the face of the firm, he is only one part, and no single strategy offering should really be able to move the shares around.

Unfortunately for Legg Mason (LM-NYSE) many of their BuySide silos are putting up lousy numbers at the same time.

Bradley Alford, founder of the investment advisory firm Alpha Capital, also said that Miller was not the only manager at Legg to perform poorly.

"I have never seen a firm get it so wrong all at once," Alford said. IHT

Legg’s current and prior management has to take share the blame; the fund managers have been largely terrible, but the costs to bail out money-market funds have been extraordinary, and earnings have been severely impacted:

Legg Mason Inc. reported a second straight quarterly loss because of costs to bail out money- market funds and $18.4 billion in investor withdrawals from the Baltimore-based company’s stock and bond portfolios.

The net loss was $31.3 million in the fiscal first quarter ended June 30, or 22 cents a share, compared with a profit of $191 million, or $1.32, a year earlier, Legg Mason said today in a statement. Costs to prop up money funds cut earnings by $155.4 million, or $1.09 a share. Bloomberg

The stock was indicated as low as $36 and change pre-market, but somebody was just kidding around and it is trading green despite exceeding analysts worst case earnings scenarios. Outflows continue, but perhaps are lighter than some looked for, as Miller and some of the other Legg managers get down to their most hard core fans; at the end of the year they could be running the “sticky” money that refuses to leave, either out of some misguided loyalty or a desire to get back to even.

Everyone is piling on poor Bill now, but he is an indirect beneficiary of the bailouts in Washington. Shorts will ease up on his financial stocks, and the bailout of Freddie Mac saves him from another embarrassing end game, assuming the worst is over for the GSE’s. And Miller’s his quarterly letters will remain required reading, at least if you are looking for a good chuckle as he tries to justify his stances over the past year.

I have never seen a mutual fund manager post such a bad streak; Bill has probably been bottom decile against his peers for more than half of the trading days over the past year; too many financial stocks is one thing, but he has had problems everyone else, with the exception of IBM and Amazon.com.

If there was a disaster out there Bill found it and bought with both hands. Only time can heal his track record, which is essentially beyond repair on a 3 and 5-year basis. I don’t realistically expect Legg Mason to fire him, but fund managers across the Street might consider him a case study.

Yes, folks, this can happen to you.

Don’t let it.
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Time to Buy? The stock finally bounced, but seems to be only as good as the bid in financial stocks.

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Legg Mason Conference Call Transcript
Seeking Alpha

Legg Mason Posts Second Straight Loss on Money Funds
Bloomberg

Legg Mason manager loses his winning touch
Reuters

Is Bill Miller’s Star Waning?
NY Times
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