Dec 30, 2009, 9:11 am

Bill Miller Stages a Spectacular 2009 Comeback

Bloomberg posted an article today about Bill Miller’s performance for the year. Without a doubt the numbers are extremely impressive. Bill Miller’s Legg Mason Capital Management Value trust rose 43% this year. That placed Miller ahead of 93% of similar mutual funds. Miller posted far higher gains than the S&P 500 which is up year to date 24.6%. Since the market lows in early march of this year Miller’s fund had approximately doubled in price.

This does not mean Miller is a great portfolio manager due to his performance this year. Short term performance is not impressive. Any fund can be the top fund for a short period of time if the manager gets lucky by betting on the right sector. Even the worst managers were able to show impressive gains while oil prices were rising by being overweight the sector. A good manager can have a bad short term record by being overweight the wrong sector. Indeed, until 2009 Miller had an awful short term record mostly due to being overweight the wrong (financial) sector. His fund underperformed the S&P in 2006, 2007 and 2008. Underperformance is an understatement in this instance. He performed awfully for the past five years with an annual return of negative 7.5%. That placed his fund behind 99% of peers in the past five years. In 2008 alone his fund lost 55%. Most of his loses were due to his misjudgment of the financial crisis. Some of the stocks his fund owned included Bear Stearns, Washington Mutual, Citigroup, Merrill Lynch, Freddie Mac, AIG, Countrywide.

Miller had a large concentration in financial stocks as the credit crisis worsened. As a value manager Miller was on the lookout for firms that had severe declines in prices, and these firms included many financial companies. He failed to consider that these companies had awful balance sheets and had taken huge risks with their involvement in sub prime loans. Every firm listed above would have declared bankruptcy had they not been bought out by another firm or bailed out by the Government.

Miller’s short term record was the subject of much criticism by investors. Here is what one commenter wrote on seekingalpha.com about Miller’s performance

“Bill Miller is a joke. He is the perfect example of what it wrong with the mutual fund industry and the conflicts of interest that exist.

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Bill Miller is actually a lousy money manager.
What makes a good asset manager? I will tell you. Someone who in bull markets atleast matches the averages % gain, and someone who in bear markets knows how to preserve wealth and hold on to those gains.
Bill Miller has proven he is able to make money ONLY in bull markets.
His streak of beating the S & P 500 was a joke. Sure he beat the market during 2000-2003, yet it was only by a couple of %. So essentially he lost just as much money as the index’s, yet this is applauded by the likes of Morningstar and others who tout him a “legend”.
I have one word for that :JOKE!

In retrospect BIll Miller is one of the worst fund managers ever to have managed money, and if anything, he was nothing more than as asset gatherer, not asset manager. Tell me, do any of you defending Miller have a few hundred million in the bank or a 85 ft yacht, like Miller has.
All from collecting management fees from losing people money over the long term. The value of Miller’s fund is exactly where it was over 10 years ago. That is not a short stretch of underperformance as some have used to rationalize Miller’s performance. That is pure mismanagement of the funds given to you.
Miller should be forced to return money to shareholders out of his own pocket, though I suspect the “legend” is not losing any sleep over his performance.”

Some pretty harsh words were directed at Bill Miller. He did make many severe mistakes by investing in numerous unsound financial companies. However, everyone is human and people make mistakes. Some of the undisputed best investors ever including Benjamin Graham, and Warren Buffett have made mistakes. According to The Globe and Mail “In 1929, his (Graham’s) investing partnership sank 50%,and lost another 50% for good measure the following year. At his absolute low point, his investments had dropped by 85%-better than the general market, but hardly a record to crow about.” However, in my mind and many others will agree with me Benjamin Graham was the best investor ever.

What matters to true investors are long term results Miller’s performance can be measured from when he started managing the fund in 1990. $10,000 invested in 1990 in the Miller’s fund would be worth $55,000 today versus $32,000 today had it been invested in S&P 500. While I am not a shareholder in Miller’s fund I wrote this article to show the foolishness of relying on short term performance. I think that Miller’s long term performance shows his true skills.

Updated on Aug 7, 2016, 9:57 am

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