Morningstar’s Kinnel: Bill Miller was Bound to “Run Out of Steam”
Bill Miller's legend was cemented, in part, by the folks at Morningstar. In my mind the Morningstar and Miller were joined at the hip, and their glowing praise of Bill and his unique approach fueled a media frenzy that crowned Bill King of the BuySide.
Christine Benz made her fame, and career, following Miller and Legg Mason, humping the story at every available opportunity. Miller bought Amazon.com in the late 90's, something his "value" peers were loathe to do, given it was a growth stock, and he coasted to victory against his peers while the inflows tumbled into Baltimore. He was a "genius", according to the media.
In April 2008 Morningstar did a series of video interviews with Miller, a rare media appearance for a man who often cultivated a cult of mystery. Main Street did not know what he looked like as recently as 2005. The money was pouring in, and he did not need to go out of his way to market himself or the funds, until recently.
Morningstar's ranking system is a quantitative system that is completely objective, measuring funds against their peers. But Morningstar has been constructive in print, and in their subjective assessments; largely recommending investors ride it out with Miller. They thought the pitiful performance was just an aberration, and he would likely get back on track.
Alas, it never happened. Bill is getting wiped out in all his financials once again today, and another few days of pain could find him down 50% over the trailing twelve months. Conversely, this could be as bad as it gets; although I was wrong in thinking Miller’s pain peaked in March with the Bear Stearns implosion. Given how plugged in most money managers are, Miller’s cluelessness on March 14th, while he was pitching financial stocks at an investor presentation, was mind-blowing, at least to me:
Miller’s comments March 14th
Mr. Miller was speaking at a conference titled ``Credit Cycle-What’s Next?’’ in the auditorium of Deutsche Bank in New York (on March 14th). During a 40-minute session, Mr. Miller along with other experts spoke to more than 200 top-tier Deutsche Bank clients about the markets. In particular, he talked at length about why this is a great time to buy financial stocks - including Bear Stearns.
After the presentation, an audience member raised his hand and asked Mr. Miller if he was aware that Bear was collapsing and its stock was down 15 percent that morning. Mr. Miller looked shocked, according to observers.
But even more shocking is how Morningstar has handled this situation. They told people to get in, but not get out. And now Russ Kinnel, director of Morningstar’s mutual fund research, is telling us Miller’s streak was bound to “run out of steam”:
Talk about a fall from grace. Legg Mason Value, managed by the once-revered Bill Miller, has performed so poorly the past two and a half years that Morningstar now gives the fund one star, our lowest rating. But should it really come as a surprise that Miller, who was once the talk of the investing world because he beat the stock market 15 consecutive calendar years, has hit a rough patch? No. The streak merely masked Miller’s bold approach to stock picking, a strategy that was sure to run out of steam at some point.
Many saw Miller as a cagey investor who was always one step ahead of other investors. They figured he could sniff out the right industry just in time to beat his peers and the market. But that’s not an accurate description of how Miller operates. Rather than flitting from one industry to another, Miller invests with a five- to ten-year horizon and consistently favors the same sectors. Washington Post
Fall from grace? Yes, Russ, Miller is fallen, and he is not the only one. Morningstar deserves much of the blame here, and their machinations are less than honorable. They blew the call and buried people in continuing to back the guru that put their shop on the map, and apparently have not given up on him.
Reading between the lines, Russ is proposing Miller’s Value Trust fund is a good bet to beat the market over the next five years:
Because sectors rotate in and out of favor, a reasonable scenario for the next ten years is that Miller’s sector biases won’t help as much as they did in the 1990s, but they won’t hurt as much as they have in the past three years. Put that together with the fact that the fund’s trading sizes and volatility have changed, and maybe the fund could beat the S&P three out of the next five years—and we stop talking about streaks. If the fund didn’t have such a steep expense ratio (1.69%), I might even give it five years out of the next eight.
Shame on your Russ. Shame on you Christine. Shame on you Morningstar.
Your bullshit advice here buried Main Street. I expect you to keep slinking away from Bill, like snakes in the night.
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Is Bill Miller Toast?
Kiplinger.com
Legg Mason Spins the Bill Miller Disaster
1440 Wall Street
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