Bill Miller is not your usual Value manager. He owns stocks like Alphabet and Amazon since their IPOs (and still does). At one time, he was one of the 100 biggest holders in Bitcoin personally, buying the cryptocurrency between 200 and 400 dollars (it was $9,219 as of this writing). He has not yet sold any either.
Miller notes that “value has led markets out of every recession as far back as the data goes.” That is because value names just tend to be more cyclical, and their return on capital drops when the economy peaks and rolls over. Whatever advantage value may have had will be short lived, as growth will reassert itself. Low nominal growth rates and low inflation are much more challenging for Value stocks, and make Growth stocks look cheap.
Miller’s investing philosophy was rebooted following the 1987 crash, and his fund’s terrible market returns in 1989 and 1990. He began integrating academic research that had showed a benefit of focusing on return on capital through a market cycle. Instead of the using traditional measure such as generally accepted account principles (GAAP), he focused on free cash flow yield, return on invested capital, and full cycle earnings.
The result of these changes was the fund he was managing, the Legg Mason’s Capital Management Value Trust, soon went on an unprecedented streak: after-fees returns beat the S&P 500 index for 15 consecutive years from 1991 through 2005.
Today, Miller Value Partners, manages over $2 billion in client assets. Miller Value Partners flagship fund, the Miller Opportunity Trust (LGOAX) fund has outperformed the index S&P500 Index in the second quarter (April May and June through June 30th) by 47.5% to 20.5% (before fees). Since its 2009 inception, net of fees, it has beaten the index by about 80 basis points annually.
A list of his favorite books are here; A transcript of our conversation is available here.
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Be sure to check out our Masters in Business next week with Martin Franklin of Mariposa Capital. Franklin is credited with successfully reviving the use of SPACs, or blank check companies, as public vehicles for long term M&A.