Bill Miller

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In 2005 Bill Miller and the Value trust Fund he managed had beaten the S&P 500 for 14 consecutive years, a truly remarkable feat. The question posed by the case is, given the success of Bill Miller’s model, is value trust a rational investment for an equity investor in mid-2005? To find an answer to this question one must examine the mutual fund industry and the efficient market hypothesis as well as Bill Miller and his stock picking model. The EMH states that the market is the most efficient mechanism at determining value as it has a great ability to collect and respond to information than any other mechanism. The logical conclusion to this approach is to buy and hold a large basket of securities such as index fund that mirror the S&P 500 or the Wilshire 2000. The paradox here is that if everyone were to embrace this approach and stopped analysing stocks in order to “beat the market” the market’s efficiency would be diminished. The market is dependent on individuals aggregating, analysing, and disseminating information in order to create efficiency. Another issue related to EMH is governance and efficiency. In general, regulation is thought to have a negative impact on market efficiency to the degree in which it prohibits the free flow of information. However, governance can be a boon to efficiency where it ensures that all market participants have access to information and that information is true and accurate. Striking the perfect balance between free markets and governance is difficult and will likely never be truly settled. Another significant issue related to EMH is the question of whether or not maximum stock price reflects maximum value for shareholders. One argument is that the market is accurately reflecting the value of all future cash flows given the available information consequently resulting in maximum shareholder value. However, the paradox here is that if the market is reflecting all future cash flows, then the value of the stock should not move...
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