Bill Miller (investor)

William H. Miller III is an American investor, fund manager, and philanthropist. He served as the chairman and chief investment officer of Legg Mason Capital Management as well as the principal portfolio manager of the Legg Mason Capital Management Value Trust. He is the portfolio manager of the former Legg Mason Opportunity Trust mutual funds, now housed at his own firm Miller Value Partners.

Bill Miller
Born
Laurinburg, North Carolina, U.S.
Alma materWashington and Lee University
Johns Hopkins University
Known forHis management of a portfolio that beat the S&P 500 Index from 1991 to 2005, consecutively.

Early life and education

Bill Miller was born in 1950 in Laurinburg, North Carolina.[1] His father worked as a terminal manager for a trucking company.[2]

Miller graduated with honors from Washington and Lee University in 1972 with a degree in economics. After graduating he served as a military intelligence officer overseas. He then pursued graduate studies in philosophy in the Ph.D. program at Johns Hopkins University while working part-time in accounting.[2][3]

Investment career

J.E. Baker Company

Prior to joining Legg Mason in 1981, he served as treasurer of the J.E. Baker Company, a major manufacturer of products for the steel and cement industries. Miller received his CFA designation in 1986.

Legg Mason

He joined Legg Mason Capital Management in 1981 as a security analyst. In 2007, he was appointed the chairman of the firm as well as its chief investment officer, running the famed Legg Mason Value Trust mutual fund for many years. He turned over the Value Trust to Sam Peters in 2012 and finally ended his relationship with Legg in 2016. In a February 2016 interview with CNBC, he disclosed that his fund, LMM, lost 20% blaming depressed oil prices and a slowdown in China's economy. He expressed confusion over the change of market, stating "lower oil prices are unequivocally good for the U.S."[4]

Other

Miller was an early investor in Amazon and invested heavily when most analysts were skeptical.[2] He has also invested heavily in Bitcoin[5] and Valeant Pharmaceuticals despite the company's pricing practices on prescription drugs.[6]

Investment philosophy

Miller is considered a value investor who believes that "any stock can be a value stock if it trades at a discount to its intrinsic value".[1] Miller has reiterated his investment philosophy multiple times in letter to shareholders, detailing it as the following 2006 letter:

Value investing means really asking what are the best values, and not assuming that because something looks expensive that it is, or assuming that because a stock is down in price and trades at low multiples that it is a bargain … Sometimes growth is cheap and value expensive. . . . The question is not growth or value, but where is the best value … We construct portfolios by using ‘factor diversification.' . . . We own a mix of companies whose fundamental valuation factors differ. We have high P/E and low P/E, high price-to-book and low-price-to-book. Most investors tend to be relatively undiversified with respect to these valuation factors, with traditional value investors clustered in low valuations, and growth investors in high valuations … It was in the mid-1990s that we began to create portfolios that had greater factor diversification, which became our strength …We own low PE and we own high PE, but we own them for the same reason: we think they are mispriced. We differ from many value investors in being willing to analyze stocks that look expensive to see if they really are. Most, in fact, are, but some are not. To the extent we get that right, we will benefit shareholders and clients.[1]

Efficient market hypothesis

The Legg Mason Capital Management Value Trust's after-fee return beat the S&P 500 index for 15 consecutive years from 1991 through 2005 (consistently producing market-beating returns is considered to be very unlikely according to the efficient market hypothesis).

Miller once said, "As for the so-called streak, that's an accident of the calendar. If the year ended on different months it wouldn't be there and at some point the mathematics will hit us. We've been lucky. Well, maybe it's not 100% luck—maybe 95% luck."[7] Michael Mauboussin, former chief investment strategist at Legg Mason Capital Management, looked at the historical data on the percent of equity mutual funds that beat the market during Value Trust's 15-year streak.[8] Because the number of equity mutual funds beating the market fell as low as 8% in one year and 13% in another, he estimated the probability of beating the market in the 15 years ending 2005 was 1 in 2.3 million.[8]

However, Leonard Mlodinow, in The Drunkard's Walk, notes that Mauboussin's analysis misframes the question and, when framed properly, the probability of occurrence of such a streak is much higher, around 3%.[9] Additionally, Mauboussin's analysis also doesn't consider other possible 15-year windows where similar streaks could have occurred, but did not. When these periods are also included in the analysis, the odds of someone beating the market 15 years in a row at some point in the modern United States investing is around 75%—in other words, it would have been unlikely if there hadn't been such an occurrence.

Personal life

Miller lives in Baltimore, Maryland. In 2018, Miller made a $75 million donation to the philosophy department of his alma mater Johns Hopkins University, the largest-ever gift to a philosophy department. He stated that philosophy "ha[d] made a huge difference both to my life outside business...and to the actual decisions I’ve made in investing".[2]

A character based on Miller was featured in the 2015 movie The Big Short about the financial crisis of 2007–2008. An arrogant fund manager named Bruce Miller and played by actor Tony Bentley debates Steve Carell’s character at an investment conference,[10] "blustering on about the fundamental strength of Bear Stearns stock".[2]

References
  1. "The Greatest Investors: Bill Miller | Investopedia". Investopedia. 2003-12-01. Retrieved 2017-02-18.
  2. Schuessler, Jennifer (16 January 2018). "A Wall Street Giant Makes a $75 Million Bet on Academic Philosophy". New York Times. Retrieved 17 January 2018.
  3. LMCM Profile
  4. Belvedere, Matthew J. (2016-02-03). "Bill Miller: I lost 20%, but still bullish". CNBC. Retrieved 2017-02-18.
  5. Moyer, Liz (9 January 2018). "Bill Miller says he's started a separate bitcoin fund, believes ripple run has gone too far". CNBC. Retrieved 17 January 2018.
  6. "Investing legend and Amazon bull Bill Miller likes Whole Foods deal, plus Valeant and bitcoin". CNBC. 16 June 2017. Retrieved 9 February 2017.
  7. January 6, 2005 Wall Street Journal article titled "Bill Miller Dishes on his Streak and his Strategy".
  8. Mauboussin, Michael. More Than You Know: Finding Financial Wisdom in Unconventional Places. Columbia Press.
  9. FT Alphaville http://ftalphaville.ft.com/blog/2011/11/22/756681/randomness-and-the-lost-lesson-of-bill-miller/
  10. Lim, Paul J. (17 August 2016). "3 Important Lessons from the Downfall of Legendary Stockpicker Bill Miller". TIME. Retrieved 17 January 2018.
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