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Poor Bill Miller…
By JLP | December 11, 2008
Take a look at this graphic that was in yesterday’s Wall Street Journal. It’s a graph of the performance of the Legg Mason Value Trust, managed by Bill Miller, against the S&P 500 Index.
According to the article ($), the Value Trust is down 58% this year alone! Why? Because Bill Miller made bets on AIG, Wachovia, Bear Stearns, and Freddie Mac. OOPS!
Another reason to index?
Topics: Investing, Miscellaneous, Mutual Funds | 11 Comments »
December 11th, 2008 at 12:33 pm
Putting most of my retirement with index funds has greatly reduced my stress to a degree. I’m no expert and market timing is pretty much impossible(feel sorry for Bill’s investors who stuck it out until now).
I just consider this time period a ’sale’ on funds and get as much as I can. (I’m 27, so I won’t be touching it for awhile)
December 11th, 2008 at 3:40 pm
What is shocking is that 15 years of consecutive index beating was wiped out in three years, and really in one year. While the lines on the graph appear to be equal at this point, how about the millions of investors who invested their money in Miller’s fund only recently, after seeing his “impressive” run of beating the index?
December 11th, 2008 at 5:47 pm
this is a prime example of how hubris gets in the way of basic fund strategies. miller should have been reducing holdings in aig, freddie, etc to rebalance the portfolio. as the chart indicates, your wings melt as you soar to high to the sun. hubris sucks.
December 11th, 2008 at 6:04 pm
Eric, I agree what a bummer for those folks who based their investments on a long term run like Bill’s had.
I have this theory that every investor will blow himself up if he plays the game long enough. Watching what happened here is a little more evidence of that. I don’t know whether they lose their “humility” or what, but it’s not pretty when it happens. Think Livermore, Gann, Durant, etc.
Is it possible that Miller, Gross and Buffett might be their modern counterparts? Food for thought.
December 11th, 2008 at 7:49 pm
I had LMVT for years (around 1994 to 2003). I think it was at that point they started to impose numerous fees on my account and I decided it wasn’t worth it.
I’d like to say that I was psychic, but I just got lucky it seems.
December 12th, 2008 at 6:41 am
@Jeff, i think it is deer in the headlights and can’t do wrong syndrome. the danger sign is not rebalancing a portfolio when it starts to get overweight in any given sector or stock. i will definitely be more conscious of this in the future, given that i own dodge and cox stock fund, which had the same problem to a lesser extent by allowing aig and fannie to gain increased portfolio share in the fund.
December 12th, 2008 at 10:57 am
I owned the Legg Mason Value Trust in the early 2000’s and the returns were good. I think that as the fund became too big that it became more difficult for Miller to beat the S&P 500. This probably led to him taking larger gambles which came back to bite him.
December 13th, 2008 at 4:31 am
Just goes to show that you can only beat the system for so long.
If this isn’t a perfect argument for index funds, I don’t know what is.
December 13th, 2008 at 2:20 pm
Bill Miller’s outstanding reputation was tarnished dramatically by one bad year. Arrogance may have come before due dilligence as Miller invested in the losers that have tarnished his reputation.
However, a humbled Miller will bring stellar returns again unless he is shown the door. Miller is too good a money manager to not learn from his mistakes.
December 14th, 2008 at 9:16 am
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffet
I guess Mr. Oracle of Omaha is correct.
December 15th, 2008 at 10:52 pm
“tried to beat the system”
That is why it is called “the system”
Over time it will beat you.
Wise ones learn how to respect the system, not beat it.
Its like trying to beat mother nature. Learn to respect it, not beat it.