By now, the arc of Bill Miller’s three-decade investing career is well documented: from genius to failure and back to genius.
But as the Legg Mason stock picker builds on a three-year rebound following his disastrous recession-era record, the pain of that historic crash can still be heard in his voice and the questions from his biggest critics remain. Is Bill Miller, 65, truly a great investor or does his aggressive stock-buying strategy, scooping up out-of-favor companies, merely magnify the broader market trends -- up a lot when times are good, down a lot when times are bad?
It’s a question that Bill Gross, the bond “king” who’s shared a similar career path to Miller’s, has essentially asked about that whole generation of bull-market investing savants -- everyone from Warren Buffett to George Soros. In comments Gross made during a particularly acute moment of reflection back in 2013, his thoughts at one point turned to Miller, a man he said that, while an “esteemed public icon,” would need to put up a few more years of beating his rivals to cement his reputation as a great investor.
Some say it will take even more than that.
“Bill Miller would need to have more than a few good years to get back into people’s good graces,” said Lawrence Glazer, managing partner at Mayflower Advisors in Boston, where he helps oversee $2 billion. “It would take that to get them to overlook the downturn.”
Miller doesn’t accept that view. Two Legg Mason funds he has run for decades have performed better on average than the Standard & Poor’s 500 Index. On that long-term basis, through bull and bear markets, he has “crushed” the general market and proved his worth as a money manager, he said.
While he is willing to take the blame “for a really big mistake” prior to the recession, Miller is clearly still sensitive about the damage the crisis did to his reputation.
“I find it interesting,” he said, “that the press was very quick to anoint people -- I won’t name them -- who got something right once in a row. At the same time they decided that people with 20-year track records apparently just lost it.”
Miller, a North Carolina native who went on to study at nearby Washington and Lee University, made his mark by beating the S&P 500 15 years in a row, from 1991 through 2005. He zeroed in on cheap financial stocks and undervalued technology names such as Dell Computer Corp. and America Online Inc.
When the financial crisis hit in 2008, Miller was caught holding too many financial stocks. As the S&P 500 plunged 38 percent, his Legg Mason Capital Value Trust fund fell 55 percent while the Opportunity Trust lost 65 percent. Investors fled and in 2012 he stepped down from running Capital Value, the bigger of the two funds he managed.
The past few years have brought him a measure of vindication that the process -- looking for stocks the market has misjudged -- still works. His $2.5 billion Opportunity Trust returned 37 percent annually for the past three years, making it the top performer among diversified U.S. equity funds. And he remains upbeat about the prospects for further gains.
Yet it hasn’t been all smooth. Last year he gained 10 percent while the S&P rose 14 percent. And his Opportunity Trust still trails 96 percent of peers over 10 years and 93 percent over 15, according to Russel Kinnel, director of mutual fund research at Morningstar.
“Bill Miller is a smart, aggressive investor,” Kinnel said. “I’m just not sure he always gets sufficient reward for the risks he takes.”
In interviews, Miller has said the financial crisis caused him to lose sleep and gain 40 pounds as he wrestled with the consequences of losing so much of his investors’ cash.
“It had to affect him,” said Ken Leech, chief investment officer at Legg Mason’s bond unit, Western Asset Management, and a longtime investor in Miller’s funds. “He went from being a rock star to last place. But he stuck it out and hung in there.”
In the three decades that Miller oversaw the Capital Value Trust, it returned 12.8 percent a year, compared with 11.5 percent for the S&P 500. His Opportunity Trust fund has gained
6.3 percent against the S&P’s 4.2 percent from 1999 to 2015.
Miller has always stuck to his investment decisions regardless of popular sentiment, said Raymond ‘Chip’ Mason, the Legg Mason Inc. founder who hired Miller in 1982.
“When he first bought Amazon, everyone said he was nuts,” said Mason. “But he was convinced he was right and it turns out he was.”
Miller’s shares of the ecommerce giant in the Opportunity Trust were purchased for an average of just above $20 a share. Today they trade for more than $525.
When Netflix lost 80 percent of its value between 2011 and 2012, Miller bought the stock at about $60 a share. “It is up more than 10-fold in three years,” he said.
Miller has made changes since the last recession. He is more sensitive to broad macroeconomic developments, a policy that kept him from investing in Europe during the Continent’s debt crisis in 2011. The fund also no longer buys hard-to-sell assets such as private equity stakes, said Samantha McLemore, Miller’s co-manager.
Michael Mauboussin, a Credit Suisse executive who has known Miller for more than 20 years, said Miller was and still is a smart contrarian investor. The wild swings in his reputation, said Mauboussin, need to be put in perspective.
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“When things are going well, you are a genius,” he said. “When they are going badly you are dope. The truth is never as extreme.”