Bloomberg.com is reporting today that the legendary fund manager Bill Miller has lost his touch. After 15 years of outperforming the S&P 500, Miller, the manager of the Legg Mason Value Trust (LMVTX), has slipped into a funk, and assets in the fund are in a steep decline. Since 2003, the story notes, Miller has been trailing the S&P 500, which is down 39 percent over the trailing 12 months. Such miserable performance is shocking for a man who has been considered a genius—if not an investing God. The story says that a “$10,000 investment in Miller's Legg Mason Value Trust on June 30, 2003, would be worth about $9,800 today, while the same amount placed in an S&P 500 index fund would have climbed to $14,300.”
Let’s not bury the man yet—and if you haven’t sold the fund yet, now may not be the best time to do so (as you know, the trick is to sell when the going is good and to hold out or invest more when times are dire).
Miller is still a great manager. That said, investors should realize that Miller’s much-heralded out-performance streak was partly due to luck; in some years he outdid the S&P by a hair. Because of the streak, some investors came to think that Miller was infallible; now they assume that he is stupid. In fact, Miller has always been a risk taker, and his fund has always been volatile. The fund only holds about 35 stocks, and Miller often takes big positions in technology or other volatile names. He sometimes places big bets on troubled companies that may take years to turn around. If you look at the names in the portfolio, you will think that Miller must be out of his mind. The portfolio currently includes such deeply troubled companies as Sears, Freddie Mac, Citigroup, Kodak and AIG. But if just some of those stocks rebound, Miller will again look like a genius. Throughout the past two decades, Miller has favored financial and technology stocks. In the 1990s, those were winning bets. Lately, the positions have been losers.