By now you know that Bill Miller is stepping down from his role as lead manager for the Legg Mason Value Trust that he is so famous for having managed to a 15 year streak of beating the S&P 500 and then for blowing up the fund by holding on to too many stocks from the wrong sector.
Friday morning Sam Peters, Miller's replacement, was on CNBC and to the network's credit they asked a couple of reasonably difficult questions. I was surprised that Peters did not distance himself from what Miller has done over the last few years. There was talk from Peters about the legacy of Miller, of belief in the process, about the portfolio having a little higher quality these days and that while they don't think another huge decline is likely the portfolio now yields about 3% and they would view a large decline as an opportunity.
Oh boy.
As far as process they reasonably created the impression they did not understand what they owned as stock after stock dropped 90% with seemingly no room in the process for admitting they were wrong. I also wouldn't have much faith in their ability to assess the quality of the portfolio. The idea that a 3% yield could be a palliative for cutting in half seems ludicrous. That yield is only 100 basis points or so more than the SPX. The 3% in and of itself is pretty good but it means very little to just about everyone except the dividend zealots (per their comments on my posts at Seeking alpha) as "sweet, I was only down 47%" is not something too many people are likely to say. A large decline can be an opportunity but it is less of an opportunity if you don't sell anything earlier on.
There were several other shots taken at Miller later in the day on CNBC by Carl Quintanilla and Gary Kaminsky. I am probably coming across as being overly harsh here but this story is about extreme hubris. The question "what happens if I am wrong" is something I have blogged about many times, is a cornerstone to the decisions I make in client portfolios and is something that you should be cognizant of as well. This is a simple lesson that Miller appears to have never learned. Hopefully for LMVTX shareholders, Peters did.
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14 comments:
I guess Boggle was right, hard to beat the S&P consistantly. Miller had a good run. Then lost the handle.
How about Europe and outlook for th eshort and long run. I guess the same comment couls be made for the US also?
You are absolutely correct we all make mistakes, but we shouldn't make mistakes that we can not recover from.
Extreme hubris, ha.
You are extreme Monday morning quarterbacking. Somebody could be criticizing your record 20 years from now. How do you know what you are doing now won't be considered "wrong" in the future?
9:57,
I could be wrong at any time about any thing but the comment at 8:54 is something I spend a lot of time on. My being wrong looks much different than Miller's being wrong as has been well chronicled on this site.
Pascal's Wager comes to mind when considering any active management approach versus broad index investing, including Roger's.
Honestly, you simply have no way knowing how your thought processes will turn out. You can delude yourself into thinking that you cover the "what happens if I am wrong" scenarios. But how can you be sure your biases prevent you from the drawing the correct conclusions in your analyses?
Warren Buffett spent considerable time in his career worrying about this issue when he was running his partnerships; indeed it was one of the reasons he dissolved them.
"Somebody could be criticizing your record 20 years from now."
Actually I think I see roger criticized on a regular basis real time. I know I am one of them.
Being wrong and repeating the same course of action is different than being wrong and making an adjustment in your model based on the new information. Both Roger and John Hussman have been candid about learning from their losses, and making changes to adjust to the "new normal". What else can you ask for?
Regarding Miller, anyone who held his fund from the beginning is unlikely to be complaining.
Sam
The problem is it may take decades to find out that you have been wrong.
What else to ask for? For starters, a solid education in passive investing.
6:38, i must not be understanding your comment, if "it may take decades" to prove out as wrong then you may not be wrong.
You are actually saying that someone should switch what they do, presumably switch to what you believe in (passive?) because they might be wrong decades from now?
There's no way I have that right.
roger,
your returns are not published so we really don't know what your actual performance is.
In fact, the investing public would be shocked at actual performance of the hacks and snake oil hucksters trotted out on CNBC.
Fair enough criticizing Miller's hubris from your view 30,000 feet up, but I have a problem with you criticizing his performance without showing us yours.
you can contact my firm and ask for performance, but if you have a "problem" of any sort then why spend time on this site?
Yes, exactly.
Yes, you have it right.
Time will tell, you may be indeed be one of the greatest investors of all time. The odds say otherwise. Pascal's Wager.
anon 6:38
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