What do you guys think of Bill Miller?

[compoundinglife]

Miller seems to have lacked an understanding of capital preservation. 

 

I remember reading an interview with him where he was asked how he knew when he was wrong. His answer (paraphrasing): When I can no longer get a quote.

 

That did it for me.

 

FWIW, I've felt that Seth Klarman's barbs at "value pretenders" in his Margin of Safety was directed, amongst others, at Bill Miller.

 

Best,

Ragu

 

http://www.prnewswire.com/news-releases/legg-masons-bill-miller-releases-4q05-shareholders-letter-55119377.html

 

We average down relentlessly.  Two things seem pretty clear to me:

        first, no one can consistently buy at the low or sell at the high

        (except liars, as Bernard Baruch said), and second, lowest average

        cost wins.  We constantly strive to lower the average cost of our

        positions by buying more if and when the price drops.  Throwing good

        money after bad, others call it.  Many investors think a drop in the

        price of stocks they own is evidence they were wrong.  We think of it

        as an opportunity to increase our implied rate of return by lowering

        our average cost.  Someone once asked me how I knew when we were

        wrong to do that.  When we can no longer get a quote, was my answer.

 

[rranjan]

 

http://www.prnewswire.com/news-releases/legg-masons-bill-miller-releases-4q05-shareholders-letter-55119377.html

 

We average down relentlessly.  Two things seem pretty clear to me:

        first, no one can consistently buy at the low or sell at the high

        (except liars, as Bernard Baruch said), and second, lowest average

        cost wins.  We constantly strive to lower the average cost of our

        positions by buying more if and when the price drops.  Throwing good

        money after bad, others call it.  Many investors think a drop in the

        price of stocks they own is evidence they were wrong.  We think of it

        as an opportunity to increase our implied rate of return by lowering

        our average cost.  Someone once asked me how I knew when we were

        wrong to do that.  When we can no longer get a quote, was my answer.

 

That's really funny as long as your money is not managed with same philosophy.

[ragu]

http://www.prnewswire.com/news-releases/legg-masons-bill-miller-releases-4q05-shareholders-letter-55119377.html

 

compoundinglife,

 

Thanks for that reference. My recollection wasn't quite accurate enough. Still, that quote ought to scare away anyone that's interested in a value approach to investing.

 

Best,

Ragu

[Uccmal]

Miller seems to have lacked an understanding of capital preservation.  It is interesting that Buffett has never made this mistake on a large scale. 

 

There is alot to be said about avoiding mistakes as part of an overall long term success strategy.  Bill Miller failed at this.  As a result his long term record got slaughtered.

 

Buffet and Munger have stated that avoiding mistakes has been an integral part of their long term success.  Buffett published his requirements for a successor, and one of them was to be able to manage risk, even where is was not easily predictable.

 

His big drop seems to be the 2008 crisis and my understanding is that he was big into financial stocks at that time. But weren't many other value investors hit in the same way. From what I gather, people (Miller and other value investors) didn't anticipate liquidity risks which ultimately killed companies like Bear Sterns and took funds like Miller's down. Was he different from other value funds in that regard?

 

I think Uccmal is referring to the fact the Wechler and Combs made it through the crisis without getting killed and that was highlighted when Buffet hired them as examples of the type of people BRK wanted to hire. Hence there are other people available to watch or follow who have records of capital preservation. They were managing partnerships/hedge funds though not mutual funds.

 

Not sure which value mutual fund managers made it through the crisis without getting killed. Berkowitz was %30 down in 2008 but from what I remember he was not holding any of financials that got creamed. I think he really started getting into AIG and BAC in 2010.

 

Lots were wounded.  Bill Miller's problem was that he was the high flyer, who didn't check his downside.  Prior to Fall 2008 there were lots of indicators of a serious downturn on the way.  Fall 2007: Meredith Whitney produced the damning Citigroup report; July 2007: Bear Sterns two hedge funds lost all of their value; Bear Sterns terminates in March 2008; FFh and Buffett were cautious.  Miller wasn't.  Subsequently, years of outperformance were wiped out in weeks.  It was his investors who lost.  As usual it was the investors who piled in at the top.

 

It is interesting that Berkowitz did a repeat of the same, to a much lesser degree in 2011.  He seems to have learned his lesson very well, and those who have stayed with him will do very well. 

 

Didn't Buffett produce a treatise on his requirement for a successor prior to hiring, in which he stated rather explicitly that he was looking for risk adverse individuals, who could identify, or at least be prepared for risks that hadn't even been predicted yet.  Buffett is the guy who has priced in the damage a dirty bomb bomb, or a small nuke in a US city would do to his insureres.