Bill Miller Value Trust

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In the Value Trust case, Mr. Bill Miller is Chairman and Chief Investment Officer of Legg Mason Capital Management, a subsidiary of Legg Mason, Inc. He was a co-portfolio manager of the Legg Mason Capital Management Value Trust and portfolio manager of the Legg Mason Capital Management Opportunity Trust. From October 1981 through June 1985, Miller served as the Director of Research for Legg Mason, where he co-managed (with Ernie Kiehne) the Legg Mason Capital Management Value Trust since its inception in 1982. Over the years, Miller and his team had received numerous accolades for their distinct style and for their management record, which focused on a detailed understanding of businesses and their “intrinsic value.” Bill Miller got his start at Legg Mason, when they created a mutual fund branch of the company called Value Trust. Value Trust was Legg Mason’s first mutual fund, which was launched in April, 1982 by Ernie Kiehne and Bill Miller. The launch of Value Trust marked the evolution of Legg Mason from a brokerage firm to a global asset management firm. Legg Mason was the 15th largest asset manager in the world with clients spread across 190 countries on 6 continents. The firm operated using a multi-manager business model; each of the company’s subsidiaries, which form a diverse group of asset managers, specializes in a segment of the asset management industry and operates with investment autonomy. Legg Mason provided global distribution and growth investments including “capital allocation for product development, investing in existing affiliates and making new acquisitions” (Legg Mason). As manager of the Legg Mason Value Trust, Miller enjoyed the distinction of being the only fund manager who beat the S&P 500 Index for the 14 consecutive years from 1991 through 2005. As such, Value Trust has performed extraordinarily well. In fact, Miller’s fund made money every year from 1991 through 2005, but he was the anomaly. “As mutual funds became mainstream investments through the 1990s, investors flocked to him” (Microsoft). How would one describe good investment performance? By case definition, good performance is “one that makes an outstanding return for its company and its shareholders.” Value Trust’s cumulative return of more than 830% over the past 14 years, would prove this designation of success. The performance of Miller’s fund can be measured by comparing it to the S&P 500 benchmark index. Miller’ s fund surpassed the S&P 500 by 3.67% p.a. Could a person explain Miller’s fund performance as simply pure luck, or is there an actual strategy investment plan? The answer is not an easy one; however Miller’s strategy of selecting stocks was fairly simple. He would seek out trades that were thought to be less than their intrinsic values. Value investors actively seek stocks of companies that they believe the market has undervalued. Miller’s belief was that the market overreacts to both good and bad news, resulting in stock price movements that do not correspond with the company's long-term fundamentals. The result is an opportunity for value investors to profit by buying when the stock price is deflated. Miller’s strategy was to “place big bets on stocks other investors feared.” The biggest challenge for value investing is estimating the intrinsic value. It is important to understand that there is no "correct" intrinsic value but rather value is subjective. Two investors may use the exact same information but place very different values on a company. For this reason, another central concept to value investing is “that of ‘margin of safety,’ or buying at a big enough discount to allow some room for error in your estimation of value” (Investopedia). Some value investors only look at present assets/earnings and don't place any value on future growth. Other value investors base strategies completely around the estimation of future growth and cash flows. Despite the different methodologies, it all...
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