The Hindu Business Line : Investment Nuggets

The public face of the Baltimore-based money management firm, Legg Mason Inc., Bill Miller, is most often cited for his fund's 15-year winning streak against the US stock market index, a feat managed by few others (incidentally, the fund snapped its winning streak in 2006). Miller manages the Legg Mason Value Trust, Legg Mason's flagship fund that oversees over $20 billion in assets. Miller is distinguished by his unconventional approach to value investing. His investment strategy rests on focussed bets on large-cap US stocks. Miller is credited with making contrarian bets on technology companies — AOL during its collapse in the 1990s, Google during its IPO in 1994 — and more recently, on beaten down bellwethers such as Eastman Kodak. An ardent baseball fan, Miller is known for his propensity to delve deep into a range of subjects — literature, psychology and science.

"When some look at our portfolio and see high-multiple names such as Google residing there with low-multiple names such as Citigroup, they sometimes ask what my definition of value is, as if multiples of earnings or book value were all that was involved in valuation. Valuation is inherently uncertain, since it involves the future. As I often remind our analysts, 100 per cent of the information you have about a company represents the past, and 100 per cent of the value depends on the future."

"You never know for certain, but the nature of value traps is, they tend to have certain characteristics. Typically, one is that the valuation of the business or the industry is lower than its historical norms. The company or business normally has a fairly long history, so the historical normal valuations provide a lot of comfort. Therefore, when you get down toward the lower end of these valuations, people find them attractive. The trap comes in when there's a secular change, where the fundamental economics of the business are changing or the industry is changing, and the market is slowly incorporating that into the stock price. So that would be the case over the last several years with newspapers. They are a good example of where historical valuation metrics aren't working."

"Everyone is afraid of missing the next spurt in tech, but it's rare that a leader from one decade repeats in the next decade — tech will not be the leading group this decade."

"We try to buy companies that trade at large discounts to intrinsic value. What is different is we will look for that value anywhere we can. We don't rule out technology as an area to look for value."

"The time to own commodities is (or at least has been) when they are down, when everybody has lost money in them, and when they trade below the cost of production. That time is not now."

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