Thursday, November 17, 2011

Bill Miller Stepping Down as CIO

Update: the Yahoo Finance data for LMVTX that I had used appears to be wrong (no clue why and quite frankly concerning). The chart has been replaced by one from Morningstar.

Following the Legg Mason announcement that Bill Miller will step down as CIO after a 30 year run with the firm, Abnormal Returns details the difficulty of providing consistent above average equity returns:
Bill Miller co-manager of Legg Mason Capital Management Value Equity announced he was stepping down as CIO of LMCM effective April 2012. Like Woods Miller had a fifteen year period where he was seemingly unstoppable. His fund topped the performance of the S&P 500 every year over this time period.
Bill Miller has managed the Legg Mason Capital Management Value Equity fund (LMVTX) since 1982 and results of that data (relative to the S&P 500) is shown below. The data now shows the average performance pre-1991, the remarkable performance from 1991-2006, and the underperformance since due to the misplaced bets on financials.

Back to Abnormal Returns on the potential danger of allocating to outperforming managers:
In investing a fall from grace is a common occurrence. In 2011 we have seen both John Paulson who conducted the “The Greatest Trade Ever” and Bruce Berkowitz, Morningstar’s manager of the decade both stumble badly.
Source: Morningstar


  1. Jake,

    Here was my effort:

    Would love to have the old annual reports prior to 1994 -- get the cash flows and calculate the IRR -- the story is the same for many; do well with a little, do poorly with a lot.

  2. Wow... pretty amazing how poorly the actual investor has done. The dangers of performance chasing!

  3. There is one group that did well... the fee on the fund was 1.76%. Not a bad rate for a fund that provided 0 returns over the past 13 years for a buy and hold investor.

  4. Going back to the late 1980s and early 1990s, there was a co-manager working on the portfolio with Bill Miller named Ernie Kiehne. Like a lot of other value managers at the time, they had a problem with being overweight financial stocks in the 1988-1990 timeframe - some people say Ernie Kiehne was primarily deserving of blame, and some people don't.

    MBAs are all taught that time-weighted averaging is the way to calculate returns rather than dollar-weighted returns. While that's the mathematically correct way to do the calculation, in the mutual fund business it really does stink to be late to the party . . . . . . . with nearly all hot funds such as the Legg Mason Value Trust, the dollar-weighted returns end up wildly lagging the time-weighted returns. Too too bad!!

  5. Bill Miller's record isn't as bad as your chart implies. I think the starting point you picked appears to impact the results.

    If you look at the Morningstar chart of LMVTX total return since 1982, you'll see that Miller significantly outperformed (until the disastrous bets during the financial crisis).