Webconsuls Blog

Wednesday, December 17, 2008

Never Be Too Sure Of Yourself or How To Lose A Fortune

Bill Miller is a legendary mutual fund manager. Or, should I say, was a legend.

As this story in the Wall Street Journal reveals Miller certainly was a legend.

Miller managed the Legg Mason Value Trust Fund. From 1991 to 2005 the fund beat the broad averages every year. No other mutual fund manager can claim a streak like that.

Miller is a "contrarian." He found stocks that he thought had value where others did not. He was usually a step or two ahead of the market. If you had invested $10,000 in his fund in 1991, then in second quarter of 2007 it was worth almost $109,000. A similar investment in the S & P 500 would have been worth less than $64,000. In the 4th Quarter of 2008, the $109,000 had fallen to less than $43,000 while the S & P 500 investment had fallen to just under $40,000.

Miller failed to beat the averages in 2006 when he missed energy stocks. In 2007 he bought stocks of home builders and lost. He thought that other investors were too pessimistic regarding the housing and credit markets and began buying Merrill Lynch, Washington Mutual and others.
He thought that financials had bottomed in the end of 2007 and began buying more. On Friday March 14th 2008 he bought Bear Stearns at $30/share and boosted of the "bargain" purchase of a stock that had been over $150. Over the weekend the weekend Bear Stearns collapsed and it was taken over for $2 per share. And this is a guy who was a Wall Street legend and who beat the aver

I would suppose that almost everyone investor is down this year. (Maybe you rent your home, have no investment real estate, and keep your money under your mattress, then you may not be down but I would not call you an investor.) If you did better than the most and lost less than the averages, congratulations. But don't think you will do that forever. As Miller showed, even the best can go wrong.

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