He made a comment yesterday about when he first bought Amazon around $80 in the late 1990s but he said that unfortunately it went down to $6. The way he lamented I took to mean they sold none on the way down to $6. Obviously they bought more, he said the average price now is about $9 so it is up a ton from that average.
We know that from the financial crisis he again held a lot of the wrong names for far too long like Freddie Mac and Citigroup according to this link and AIG, Bear Stearns, Wachovia, Washington Mutual and Countrywide according to this link. I weighed in on Miller a little over a year ago.
In looking at the chart for the last decade it looks as though the decline has more than offset all those years of outperformance however that is not quite right. Adding in the dividends (per Yahoo finance) the fund is down 17.22% over ten years while the S&P 500 was down 21.1%. So for the decade it beat the market by about 0.38% annualized but took anyone who held for the entire ten years on a sickening ride.If you got in after those first two dividends however then you did much worse over the last nine years losing 18.47% (including the dividends reported by Yahoo) versus losing 13.18% for the SPX. The numbers appear to get worse as you go shorter on the chart. Even after a great 2009 the fund has trailed the S&P by a lot over the last two years.
The second chart (down below) which you can click on to see better is from Morningstar and is for the life of the fund. My understanding is that Morningstar charts show total return, so including dividends. For a little while there right before the bear market started the fund was way, way ahead of the S&P 500 and that outperformance has been almost completely been given back because of how he navigated the recent decline.
Part of the issue that I think he has is summed up in something he said toward the end of his visit to CNBC yesterday in which he cited a fund company called Manning and Napier with an eleven year streak of beating the market. He said he saw a quote from someone there who said it will be a relief when the streak is over. Miller's reaction on Squawk was "so what you're saying is you want to underperform? That doesn't make any sense to me." He said his streak was not important but outperforming and adding value to clients is important.
I have no idea who Manning and Napier are (not a slight) but he does because they have a streak going and he read something about their streak. How is this anything but evidence of a massive ego? Given that he seems to have no sell discipline it would appear that that his massive ego gets in the way of running the fund. Do a search for articles about him for when the stocks mentioned above were only cut in half, so before most of them totally crapped out. See for yourself what he was saying. Essentially the market was wrong. I wonder how many fund holders feel like he has added any value recently.In my previous post on Miller (linked above) there is a similar story about an interaction he had with Chris Davis. There is a saying about bull markets making geniuses out of people. Does anyone think this might be the case here? It is a reasonable question.
28 comments:
Your rant would have a lot more meaning if you could post your performance against the S&P for the same period you take Miller to task.
We differ a lot. I am not looking at miller to be perfect I just want to know his flaws. You point it out he has no sell discipline meaning he has no ability for market timing. That is fine with me. Now I can listen to what Miller has to say and learn what he does know. He has got to be rather insightful in other areas to have such a record, even if you think he is just a super speculator.
Similarly, I try to figure out what areas other people understand and learn from them. Nobody has every thing down perfect.
SEG
Not having a sell discipline on the downside and not knowing when to take a loss or at least become defensive were his obvious downfalls (among others such as ignoring fundamentals and overweighting the wrong sectors.) Certainly Roger doesn't need anyone to speak for him, but if you read his blog you would know there is a time when he gets defensive, saving him from being down a LOT. The longer I have been at this (and it has been quite a while), the more important I think this is. Successful long term investing imo comes down to building a diversified portfolio based on your risk profile and investment objectives (perhaps utilizing some kind of benchmark to compare it to or not), and sticking with it, only making small changes when something changes in one of the components (as in underweighting the fiancials when the yield curve inverts). The exception to this is taking action to avoid the "down a lot" scenario, aka a major bear market aka a black swan. Since anyone can mimic a benchmark, the money manager adds value by knowing when and how to avoid the black swan. Bill Miller didn't do this, Roger did.
Andrew L.
well that didn't take long to whip up a little chatter, thanks guys.
if it helps with the debate I also heard Miller doesn't like cats!
joke joke joke I totally made that up I have no idea what Miller thinks about any animals.
I think Roger has a lot of knowledge and a lot of insight.
My point is instead of taking Miller to task, we could learn more by identifying Miller's strengths and learning from them.
SEG
seg I believe the TV segment that I linked to from yesterday gave us a chance to extract anything positive from him.
Roger,
I grant you that there is value in taking Miller down a notch as to many people hold him in to high a regard.
I also think there would be more value for everyone if you would identify what you believe to be the best insights miller has in the interview.
I am not trying to pick on you, just trying to provide a counter point to your comments.
SEG
my hide is a little thicker than that. I believe it is very difficult to suss out the value he may provide.
based on the portion he had in financials two years ago he appears to be 100% bottom up with no regard for the forest.
i believe it is true that someone with middling analytical ability could assemble a portfolio of 30 or 40 or 50 stocks and have a couple of huge winners (you might say I walk in those shoes). If he is better than middling as an analyst, and he probably is, then there could be more than a couple of huge winners creating a very good track record for a long period of time but ultimately his inability to see the forest may have undone years of work.
watch the video, what positives do you glean?
Miller seems to believe:
Momentum play continues
There is excessive pessimism
He seems to be talking his book with IBM, Amazon, etc. (he may be right I have no idea)
He bought into the classical economic BS they teach in colleges - we will never have another depression.
---------
I think he is right about momentum and pessimism for now. I think this bull continues, although a 10% correction will eventually happen.
I think Miller and most others do not understand the problem of excessive leverage (excessive debt) we have accumulated. This debt problem will eventually return in spades, but not while the Fed is trying to reinflate the bubble.
I use to say we are turning Japanese, now I realize that has already happened.
I firmly believe you listen to Keynesians at your own peril.
SEG
Rog - I thought I knew you better than that, you seem surprised by an EGO in this business!!! Yes Miller has the swagger of Custer as do many other names, say Ken Fisher or any Goldman analyst who believes their own press for example. This ego is precisely why small, independent, boutique investment shops are growing exponentially and why the men and women who once believed in mother Merrill are running for the doors.
To SEG's point of trying to understand what Miller knows and ignoring the rest. While this thought on the surface seems logical enough, I believe in practice, however it is flawed. By ignoring the totality of an individual, especially in professional financial matters, multiple unintended circumstances usually transpire. Miller and the rest of the egos need to be view from a macro level to determine value of their results.
Stepping down from my soapbox now...
I heard Bill speak at an investment management conference last November. I was expecting a lot of brash bravado, but he was was incredibly forthcoming and honest, willing to admit where he messed up. His presentation was essentially his take on behavioral finance, that was very interesting. He came across as a pretty smart guy.
The biggest lesson I came away with from that day (and not just from Bill) is that the incentives in the mutual fund world are a bit messed up. Managers want to do right by there shareholders and produce solid returns. But the pressure to increase assets undermanagement leads to the ridiculous hype we see when a guy like Miller has a streak that he has.
Paul,
I have to disagree with you. If I can only learn from people that get everything correct than the list of people to learn from would not have any names on it.
We are forced to identify what is accurate and inaccurate in what people are saying. This way we can try to learn from all knowledgeable sources. Even great sources need to be evaluated to eliminate the small percentage of bad information.
However, there are many who are so bad it is just better to ignore them completely. If you are saying Miller is one of those in your opinion OK. But how do you explain his beating the S&P 15 years in a row? I for one would like a better understanding of how he does that.
BTW, it is just to cold here in FL to go bicycling this morning.
SEG
According to Professor/Author Leonard Mlodino, on randomness (like Taleb): out of the thousands of mutual fund managers, the odds that someone, over a period of 40 years, would beat the S&P for 15 years in a row, by chance alone, is 3 out of 4!
this doesn't prove that miller's streak was random
watch Mlodino's talk on google talk/youtube
also fun statistical view of the validity (not) of the standard best of 7 sports playoff
http://www.youtube.com/user/AtGoogleTalks#p/search/2/F0sLuRsu1Do
Mike in Virginia
Roger,
You did a good job with this one. Keep up the good work!
Any thoughts on Warren Buffett
What mutual fund managers DO HAVE sell discipline?
I didn't really pay attention to this during the tech crash 'cause I was busy following individual stocks. But as I looked around during this bear market, I wondered why in HECK so many mutual fund managers were doing so poorly. These guys are supposed to be smarter than me, so I'd think they could avoid some of the downside. But none of them did. They're not holding balanced portfolios, so they are VERY susceptible to market drops. Yet I don't see or hear of managers working to avoid it. They're equities - they're easy to sell - it's not like they are running Harvard's endowment and are locked into illiquid assets.
SD they generally need to stay invested but a go anywhere fund does not have to double up on financials right before they implode far worse than the market.
On a similar note, I am wondering Roger what your thoughts are when someone like Chanos comes out and says he is expecting China to implode, as he was famously right on Enron. Is such a pronouncement to you even an issue or is it best ignored?
THanks!
L.D.
funny LD this morning I bookmarked a couple of things I read today on this that I thought would make for a good blog post for tomorrow.
China has some serious risk factor that anyone investing should know about. I believe the pros outweigh the cons. I'll try to explore this in tomorrow's post.
@SEG - Not to split hairs, but I am not implying that we only learn from the people who get it correct. I am suggesting that we look at the whole and the results from the whole before we deem someone worthy of study. This industry is littered with self-promulgating egos who have flashes of success but no critical analysis of technique and therefore fail miserably at the worst possible time.
PS - Its warming now through the weekend!
Thanks Roger. Since you were kind enough to answer I am going to ask another question...what do you think is an appropriate portfolio weighting for a moderate risk profile investor (and a conservative risk profile investor) to have in an alternative asset class like RYMFX. I am not not asking for advice, just an opinion. Many thanks!
LD
Bill Miller, champion coin flipper for fifteen years in a row.
Paul,
OK, I think communications is an art (that I am not good at) but, I think we generally agree.
yes, I waited until the afternoon to ride and it was simply chilly not cold. I am looking forward to the warming trend.
Bill Miller is a very smart cookie. However he does not have any market discipline and does not know when to back off. I was reading about Roger Ward Babson that in September 1929 he called the crash. These two men have two unique abilities. One about picking the correct stocks; the other calling market tops. If you can combine the two into one, well, that is very rare. Buffet comes close to that rarity. He does not call tops or bottoms however before the crash (2007) he had 30bil available and now that has been deployed into railroad companies of Burlington. Buffett does not pick the top or bottom but he likes to be generally correct. Now I am working on a program(computer) excel based that gives you when to retreat from a stock and when to go in. It gave a buy signal on SQM at 37's today is in the 43; two weeks time. On 31/12/2009 it gave a buy signal on hban at 3.60 now at 4.30. It gave a buy on mco at 21 then at 18's. I have not gone into on all calls because 1. takes time to understand the companies before I comit. 2.Sometime am afraid to go against the grain like MCO where Buffett was selling, along with some speculators. But have not had any losses. I feel lucky. Am studying and fine-tuning my excell program to be more accurate. Am trying to combine Bobson and Miller together. I like to call gorilla trading. Because I like to maximize the profits with the smallest capital without using leverage, derivatives, options and all of that, but purely buy and sell good old stocks.
Best, Jeff from Milan Italy
P.S. respect you SEG and Roger for being such fine professionals and have learned quite alot in this blog. If I know a little more today must thank this blog, Roger and the co-participants. Thank you SD for many fine comments.
By the way. I have calculated the potential high for IBM is 179. If it goes to 233 sell all that you have plus what you do not have.
Best,
Jeff from Milan, Italy
"This time isn't different.....
Over a longer time frame, the market will go up...."
Sounds like you Roger, only he doesn't time his exits to preserve capital. Like your approach better, but he doesn't sound like a whack job. More like a 100% invested equities fund manager. Maybe you need to stay on your own mat :)
Sam
so you are saying 40% of underperformance over last 7 years and a -72% drawdown is a bad thing, right?
http://www.quickfilepost.com/download.do?get=363b3bafc966e9306dc27c982701f7f6
bill miller has a great marketing dept.
i think the point that manning & napier is trying to make is that they don't want to get complacent, just like miller and those who thought (and may still think) he is god did.
Also it appears Manning & Napier utilizes a team approach to managing money in contrast to a single money manager. Roger what are you thoughts on single vs. team managment structure?
i'd like to think i work well with others on a wildfire, not so sure about in a portfolio.
seriously, i'm not sure how this works, doesn't someone ultimately have to be the one to say yes or no?
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