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Bill Miller's wishful thinking

April 09, 2008 | About:

Bill Miller could use a reality check. The value manager wants a better deal for Yahoo, but like so many takeover targets it has no better offers.

The Legg Mason mutual fund manager rallied to the defense of embattled Yahoo (YHOO) this week after Microsoft (MSFT) threatened to lower its $42 billion unsolicited bid. Miller, whose fund was the second-biggest holder of Yahoo at year-end, told The Wall Street Journal he believes Microsoft is making a mistake by taking an aggressive posture after a two-month-long standoff with Yahoo's board.

"If Microsoft raises the offer, the pressure shifts very quickly to Yahoo to negotiate," he said in an interview published Wednesday. But "if Microsoft lowers the price I'm not prepared to say that's better than Yahoo remaining independent."

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Rating: 2.0/5 (16 votes)


Jaxphy - 9 years ago    Report SPAM
Bill Miller may have a bad year this year too depending on his holdings in Maankind, kodak etc. He bet the S&P during years it grew positively and widely touted as somebody with a winning streak no one could beat.

If you have two bins one for the elite managers like Buffet who consistently beat the market and the other for the loosers who simply run shop to make money for themselves, Bill is in the loosers. Its really breathtaking to see the beauty of a simple concept like S&P index to separate the loosers and the good ones. The pity is that these loosers still make a name and maintain respect.

I hope he is not one of the managers to succeed Buffet
Venkys - 9 years ago    Report SPAM

Interesting that as soon as master investors like Miller or Pabrai have a few bad picks, every wannabe who just knows the names of a few gurus and a smattering of investing knowledge starts bashing them.

How do you know some of Miller's picks that are in the dumps today will not be winners in the future?

I positively ADORE Buffett, but he has an investing track record of many decades and before the internet, it was simply not possible to track anybody's trades with such ease and in such detail. People may have heard about his Coca Cola, Washington Post, PetroChina investments but who knows how many non-spectacular positions he had, especially in the early years?
Jaxphy - 9 years ago    Report SPAM

Well, I may be inexperienced in picking up individual stocks. But I am quickly learning that Bill Miller or most of them running mutual funds just cannot even touch the S&P. They also won't simply bow out. I am not so worried about speculators investing in these funds. Many of these so-called gurus play with the retirement money of many people who sock up pennies. If you feeding yourself on other peoples retirement money as a manager there should be integrity. One could simply forfeit their cut from the expenses. On the other hand, Pabrai's cut, I believe is based on growth.

Well, what are the characteristics of a good money manager ? I consider some to be:

1. Should be able to accurately forecast future bussiness environment and invest accordingly. This is the primary job. This does not come easy. Maybe you have to own multiple bussinesses. For example, say you are the head honcho of Berkshire's insurance bussiness. Once you know people are not buying insurance, you question why? Probably, their monthly motgage payments have been adjusted, hence, insurance becomes secondary. Maybe See's candy shipment costs are through the roof. So you know railroads are the best. Many public works improvement have been postponed due to war expenses. However, municipalities cannot postpone projects anymore.

If you don't own industries, you travel and discuss this with people in bussiness but not just sit in front of a computer and read media and statistics on uemployment etc., and make bets.

2. At any given time, your funds should not oscillate more than say 5% of what was paid for. You never know when your client will be needing it.

3. Be conscious its other people's money. If you don't earn it you don't draw money as expenses. Infact this money management has become such a cushy job you are paid extremely well for a poor job done. There is no other job like this. They also simple cannot be fired as many people have been locked to such funds via their group reteriment / 401k plans.

4. If you are speculative and agressive, be open about the roller coaster ride. But you could still follow the above three. But don't advertise those speculative stocks and artificially inflate those prices. A guru's job comes with responsibility.

5. You could technically keep all the money as cash growing at money market rate and say market is not condusive pointing to statistics. But you can still draw your cut. So your growth should be well above the treasury rate.

You can surely bin all the money managers in the above categories. I am saying even with my inexperience, my stock picking experience or even a layman's may not be as bad as Bill Miller. I am not a wannabe Guru. I just want to preserve my earnings that were developed via providing value to the society.


Sivaram - 9 years ago    Report SPAM
First time poster but long time reader... signed up finally... anyway...


Hardly anyone fits your requirements of a good fund manager. Even Warren Buffet doesn't fit your definition (ever looked at Berkshire Hathaway stock in the early 80's or late 90's/early 2000's; in fact if Berkshire shorts are right and future earnings decline (particularly from insurance), BRK stock price can drop way more than 5%))? In particular, your 5% volatility requirement would rule out nearly all value funds and most growth funds. I would assume that you would basically be looking at market-neutral funds, hege funds, and fixed income funds. If you look at book value not changing more than 5% rather than market price then you may find a few more skilled investors. But even then I doubt there are many.

I'm a fan of Bill Miller and I completely disagree with your view on what a fund manager should target. I think your requirements are not really directed at investing skill but on asset type. In other words, I think you are really looking for bond-like stability in stocks. I hate to say it but you just aren't going to get it. If someone might need to withdraw their money any minute and can't tolerate a 5% loss then they really wouldn't find many stock funds (even passive indexing can show massive losses during bear markets).

It seems like I'm attacking you but that's not my intention. I'm a newbie and I agree with your sentiment that there are some people who get paid too much for underperforming but I think your requirements are too severe for equity investments.
Cm1750 - 9 years ago    Report SPAM
Agree with Sivaram,

The main objective of a PM should be beating the S&P500 or relevant index over a cycle and protect against permanent loss, not focus on short-term fluctuations. I am realistic enough to know that all of my core holdings could easily drop 5% next week, but I really care only about the next 3+ years.

Jaxphy, if you are so worried about temporary 5% drops, money markets are the answer. As to your comment "Buffet who consistently beat the market", you may want to look at the massive underperformance he had from mid 1998 through 1999 (down 30% vs. up 30% for the S&P500). According to you, he was not doing a good job.
Jaxphy - 9 years ago    Report SPAM
Sivaram and cm170,

Thanks for your comments. I made a typo. Meant to say 15%. Also underperformance for a year or two is ok but restricting the fees is acceptable.
Sarpotd - 9 years ago    Report SPAM

Jaxphy, Investment Advisers are not allowed to charge fees based on performance. That is the realm of the hedge funds and that is the LAW!

I think all personal investors should give some licensing exams (eevn if you are good at investing already). It can only make you a better investor.

Alanb9 premium member - 9 years ago
sarpotd Wrote:


> I think all personal investors should give some

> licensing exams (eevn if you are good at investing

> already). It can only make you a better

> investor.

Taking a licensing exam certainly helped Warren Buffett. Just think how bad he'd have done if he wasn't licensed!!! (note: the previous two sentences were entirely and completely sarcastic.)

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