Quote of the Day: Bill Miller on Risk

Bill Miller on Risk:

You also know that rising stock prices mean lower future rates of
return and falling stock prices mean higher rates of return. So I was
much happier in the summer of ’02 when you buy everything on sale than
I was in the Spring of 2000 when a lot of things were super-expensive.

view is that the evidence is overwhelming that most people are too risk
averse. And that therefore they should be taking a lot more risk than
they feel like is right.

The problem is that real risk and
perceived risk are two different things. And that’s where people get
into trouble, because they perceive risk to be high when prices are
low, and they perceive risk to be low when prices are high. That’s the
psychological problem that most people have.


Bill Miller: What’s luck got to do with it?
Jason Zweig
Money Magazine, July 18 2007: 10:52 AM EDT

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What's been said:

Discussions found on the web:
  1. Karl Smith commented on Dec 13


    I am working on a paper now, tentatively called Fear and Contagion in Financial Markets, which essentially argues that investors have to balance opportunities for profit with the very real psychological and physical consquences of fear and stress.

    In other words it imposes a real physical cost on you to watch your portfolio go down in value. The simplest way to measure that is that increased stress shortens your expected lifespan.

    If investors value their lives then they will have to balance the potential profit from taking on extra risk with the increased probability of an early death.

  2. peter from oz commented on Dec 13

    listen to bill miller
    not what you thought he said
    not what you hoped he sid
    just what he said
    hey eclectic
    guess what we sophisticates also speak pig latin
    however we know you are just a poor illiterate sap so we are deeply sympathetic
    we’re just sitting around here in the dealing room watching you get whipsawed
    rgds pcm

  3. curmudgeonly troll commented on Dec 13

    “the evidence is overwhelming that most people are too risk averse”

    hmmh… take out ‘too’ and I agree. however I don’t know a financial theory that says what a ‘correct’ level of risk aversion would be, or evidence that people exceed it.

    There are some who are risk-neutral and prefer to maximize their long-term rate of growth. But per the Kelly formula for maximizing growth, you are risking 1-p probability of a p drawdown, and most people don’t want to risk a 10% chance of a 90% drawdown… does that make them ‘too’ risk-averse?

  4. Pangaea commented on Dec 13

    I see the date of that quote was back from mid-July – I wonder if that was when he was buying up all the financials at those “low” prices?

    Like anything in the markets, everything is relative and prices are determined only by what the next trade will be, and (over shorter terms at least) depend on what anybody and everybody else thinks and will pay.

    In other words, there are no absolutes on high or low, and you have to be concerned with what the rest of the crowd will do after you buy or sell.

  5. michael schumacher commented on Dec 13

    bill miller talks about risk…..sure why don’t you ask AMZN short sellers what they think of managed risk….or I guess cooking the books and decreasing available stock and now padding your A/R’s with still more debt. is a growth strategy

    fuck off Bill Miller and earn some return and stop trying to create it out of thin air…

    If he did’nt have such a big stake in AMZN where would he be return wise??? thought so

    Sorry had to be said..


  6. Marcus Aurelius commented on Dec 13

    Risk averse? Take a look at the current state of finance and how we got here. We’re not risk averse – we’re risk ignorant.

  7. Jay Weinstein commented on Dec 13

    Here’s the Legg Mason Value Trust recent record YTD 10th percentile of its group
    Last 5 years 12th percentile!

    While I think Miller was an interesting mind when he had smaller dollars and no one had ever heard of him, truth is he was just a statistical fluke. The law of large numbers just caught up with him.

  8. peter from oz commented on Dec 13

    sorry you turned on miller
    that include you michael
    hard to run heavy money
    even harder to run instant experts
    rgds pcm

  9. Steve Barry commented on Dec 13

    Per Morningstar:

    Miller’s flagship LMTVX fund returns for large blend category

    1 year: 97% (that means he was worse than 97% of all funds in the category)

    3 year: 99%

    5 year: 78%

    10 year: 14%

    Conclusion: Since most investors nowadays don’t have a 10 year horizon, this guy is a total has-been. Worse than 99% of all Large Blend funds over last 3 years.

  10. Josh commented on Dec 13

    so by bashing Bill Miller make you feel better about yourself?


  11. Steve Barry commented on Dec 13

    The facts bashed him…not me. Just the facts man.

  12. Kieran commented on Dec 13

    1) Bill Miller has been brutal lately. He went heavy into Lennar, Beazer, and co. in the early and mid-2006. Oops!

    2) Prices are low? The DJIA is about 5% off all-time highs. Not sure how that makes prices low.

  13. patfla commented on Dec 13

    This sounds like a corollary to Warren Buffett’s

    ” they should try to be fearful when others are greedy and greedy when others are fearful”

    Either that or the other way round (Buffett corollary of Miller).

  14. patfla commented on Dec 13

    No – corollary is too weak. I think the two statements are equal.

  15. Bynoceros commented on Dec 13

    don’t think you can say Miller is a has-been yet. Let another recession play out, see how the fund does, then make the call.

    His kind has fared very poorly in the last few years. Methinks the odds are better than even he’ll do fine if a bear market ever rears its head again.

  16. jason commented on Dec 13

    The problem is that he’s making an assumption that high prices and low prices are obvious. But every person who ever buys a stock at any price thinks it’s low and the person they are trading with thinks it’s high, so it’s never obvious. People’s risk aversion comes mainly from not understanding what they’re doing or what to expect when investing their money.

  17. Pangaea commented on Dec 13

    “Only buy stocks that go up… If they don’t go up, then don’t buy them.”

  18. DavidB commented on Dec 13

    Miller = has been?

    Isn’t that is what they said about Buffett in 1999

    The odds of him beating the S&P 15 years in a row, 15 YEARS in a row, 15 YEARS IN A ROW! are pegged at around 1 in 2.3 million. That’s a pretty significant statistical fluke. Let me guess, you believe in evolution too then huh?

    People are too risk averse? CAL can now afford to buy itself with it’s cash on hand. Market cap 2.44B, cash on hand 3.04B

    Disclosure: I have a trading interest in CAL

  19. jmf commented on Dec 14

    Moin from Germany,

    I´ve lost the respect for him as he was buying homebuilders and was overweighting financials during 2006 and until mid 07

    here the quote from Mid 2006

    “Here we clearly made a mistake by initiating positions too early,” Miller said. “We were waiting for a significant sell-off to establish positions,” he added. “When that sell-off occurred late last year, we jumped in

  20. ef commented on Dec 14

    1. Don’t risk a lot for a little.
    2. Don’t risk more than you can afford to lose.
    3. Consider the odds.
    – AFLAC CEO Dan Amos

    There’s a huge difference in the quality of information professional investors on WS receive verses the garbage the average investor receives or is exposed to on a regular basis. If you watch the infomercials you would say: Risk? What risk?

    The average investor isn’t interested in investing thus are prone to doing a poor job. The average investor doesn’t have the skills to do the math to measure risk/reward. They don’t have the knowledge-base to understand financial history. And they don’t have the perseverance to stick to their plan no matter what. The amount of risk an average investor takes – and it’s substantial – is down to picking a “financial expert” that is suppose to have the skills and access to data/information to measure that risk/reward. And more importantly, a fiduciary responsibility to do what is right for all their clients, the average investor. But the sad state of affairs is that investors don’t buy investments but rather are sold products.

  21. justino commented on Dec 14

    After reading all responses I find that it all comes down to where one is at in his own mind and where one is at in the cycle. Figure out the former before moving onto the later.

  22. slick commented on Dec 14

    Bill’s a nice guy, has said a lot of smart things, and had a nice run – but he’s really not what I consider to be a true value investor.

    He talks about PRICE rather than VALUE. Low prices do not mean good value, and high prices do not necessarily mean poor value.

    The twin crises have sucked in a lot of so-called value managers. Separating teh boys from the men. Funny how I didn’t see Buffet buying any “cheap” homebuilders or lenders.

    The so-called value investors – who really were justbuying when stock prices dropped a lot – have been bailed out time after time in the past 3 decades. Will they get bailed out again? I’m not so sure this time. And even if they do, if they have to wait 10 years to get their money back, the return will suck. The biggest problem those fund managers face – which makes comebacks so difficult – is that their cashflow dries up just when they need it most. That’s what makes Berkshire so powerful. Large amounts of cash always coming into the coffers. They are ALWAYS in a position to buy more. That’s a huge advantage.

  23. DavidB commented on Dec 14

    The problem with hiring a really smart guy to manage your money is that if the really dumb crowd that gave him their money panics, bolts and tries to redeem their dollars then he still has to sell no matter how smart he is

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