A TV exclusive with legendary value investor Bill Miller. The only mutual fund manager to beat the S&P 500 for 15 years in a row, Miller’s Legg Mason Capital Management Opportunity Fund was the number one mutual fund last year. Where is he investing now? Find out!
WEALTHTRACK Episode #933; Originally Broadcast on February 07, 2013
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Chairman, Portfolio Manager
Legg Mason Capital Management Opportunity Trust
Here are some of Miller’s comments which you will see on WEALTHTRACK this weekend:
“Apple is the Dr. Jekyll and Mr. Hyde of the stock market. It’s the Dr. Jekyll in the sense that they are one of the greatest product innovators, creating products that people love and a brand that people love, and they’re Mr. Hyde in their completely idiotic and dysfunctional capital allocation, which is the worst probably in the history of corporate America among good companies. So they have $135 billion of cash…. Cash is equity. Equity has a cost… Apple would be up 50% on just sensible capital allocation.”
And there’s more, lots more on Apple, and unloved sectors such as housing and airline stocks which hurt Miller in 2011 but skyrocketed his Legg Mason Capital Management Opportunity Trust fund to the number one mutual fund position last year. It was up a stunning 41%! As has been his history, Miller was looking for opportunities throughout the financial crisis, which hurt him and his investors big time some years and rewarded them handsomely in others.
It seems the rest of Wall Street is just now catching up to his early bullishness. A recent reading of the widely followed survey of investment advisors by Investors Intelligence shows the bulls growing in numbers, above 50% and the bears declining hovering around 20%. This shift in sentiment is starting to show up in mutual fund flows. Since the beginning of the year, investors have been favoring stock mutual funds over bond funds, practically for the first time since the financial crisis. Are they too late? Since the market bottom in early 2009, the S&P 500 has soared more than 120% while investors have pulled hundreds of billions of dollars from stock mutual funds. According to Miller there is plenty of upside left.
Bill Miller is the Chairman of the investment advisory firm Legg Mason Capital Management, which he co-founded in the early 80’s. He is portfolio manager of the Legg Mason Capital Management Opportunity Trust mutual fund which he launched in 1999. For 20 years, Bill was the sole manager of the Legg Mason Capital Management Value Trust mutual fund where he became the only fund manager on record to outperform the market for 15 years in a row, from 1991 to 2005, before taking a beating in the financial crisis. A deep value investor known for buying unloved and battered down stocks which he believes are selling far below their intrinsic value, Miller is in his element with Opportunity Trust where he is a major shareholder. I’ll begin the interview by asking him what went right last year.
As always, if you can’t join us at the appointed hour on your local public television station, you can watch the show on our website as a podcast or streaming video. You can also find the One Investment picks of our guests and my Action Points there. For those of you who would like to see our program 48 hours in advance of the broadcast, you can subscribe to our WEALTHTRACK PREMIUM subscription service on the website.
Have a great weekend and make the week ahead a profitable and a productive one!
The Underperformance Gap:
- Most investors do substantially worse than the mutual funds they invest in
- Investors sell funds that underperform for 2-3 years
- Investors switch to funds with several years of outperformance
- Sell low/ buy high strategy is sure fire recipe for subpar results
If you can’t tolerate sticking with a manager who isn’t doing well, even if they have a great long term record- then go with a passive index fund. If you are willing to stick with a manager you believe in- stay actively invested.
iShares S&P 100 Index (OEF)
Price: $68.27 on 2/6/13
52-week range: $58.25 – $68.45
“Most people are way overweight bonds based on history. They’re way underweight stocks because they’re fearful. It’s hard to go against your psychology if you’re fearful to take more risk. So I think the answer to that would be, okay, take the lowest possible risk in equities which is to buy the largest, most successful, most stable companies with high dividends. Call it the S&P top 50 or top 100, and they’re extraordinarily cheap based on history. They’re cheap based on comparison with bonds, and their dividend yields are higher than bond yields, and they’re also less volatile in the market as a whole, and so I think that’s probably the single best risk-reward for the average investor.”
– Bill Miller
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