Lessons to Learn from Investing Giant Bill Miller

Bill Miller has fallen…and he can’t get up.

Not yet anyway.

Bill Miller is the famed value mutual fund investor at Legg Mason Value Trust. He is the only portfolio manager who beat the S&P 500 for over a decade. His “streak” lasted 15 years- ending in 2005.

Since the end of that amazing run, he has struggled. In fact, this year, his fund is getting hammered and investors are fleeing.

But in his letter to investors at the end of the second quarter (end of July), he said the best time to invest in Legg Mason was after they had horrible performance (the storm before the calm, so to speak.) Yet- investors usually chase returns and therefore continue to flee.

In that same letter, he talks about recently talking to Warren Buffett about how difficult it has been to be a value investor.

“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 but said it would take some time to work through the current challenges.

Bill Miller didn’t accomplish his incredible 15-year run by a fluke. That took hard work, investing skill and good instincts.

He seems a bit lost right now about the direction for himself, and value investors in general. From the letter:

“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.”

It’s a tricky market. Sectors that seem like a “value” such as the financials- may not turn out to be (or it may be too early.)

Learn Lessons from Bill Miller

Bill Miller’s portfolio got hammered recently because he bet on housing and financials and didn’t bet on energy or the metals. Did he just miss the boat or will he be proved right eventually?

Fundamentally, many of the financials and homebuilders ARE value plays. But so were the energy stocks and the metals.

Many articles in the mainstream press are piling on about how “awful” Bill Miller’s more recent track record is. But why focus on the negative? He has an amazing record and I have no doubt he’ll turn it around.

It’s what the best investors do.

Some lessons:

1. Remember to follow value fundamentals even if the herd is going another way.

2. Not all value plays are true “values”- be prepared to re-deploy your money.

3. When people are buying, maybe you shouldn’t be.

Let’s just say, we should all be as “awful” as Mr. Miller.