MEDLEY & BROWN
FINANCIAL ADVISORS
September 2000 Investment News
A Visit with Bill Miller of the Legg Mason Value Trust
Bill Miller insists he is a value investor, but some observers wonder. While many traditional value managers have reported lackluster results for the past five years, Miller, the widely touted manager of the Legg Mason Value Trust, has turned in terrific numbers, handily beating most of his peer group and easily outdistancing the Standard and Poors 500 Index and the Dow.
Tim and I recently took the wonderfully efficient Southwest Air flight to Baltimore and visited Miller in his Legg Mason office.
Bill is an easy-going fiftyish fellow with firm convictions about his investment style, asserting that he combines the classic value analysis model with a "competence in a broader array of companies" than that of most of his value camp counterparts. That added "tweak" to the model has allowed him to buy stocks in a number of companies that would escape the usual value investor's radar screencompanies such as Dell Computer, America Online and Nokia. And the results have been impressive. Technology stocks have soared, and Miller's investors have reaped the rewards.
He runs an eclectic shop with portfolio managers and analysts given wide latitude in the stocks they pursue, often visiting with as many as 300 companies a year. And because much of his work is not driven by statistics alone, he talks with passion about "the difficulty of making reasonable judgements about businesses."
In spite of his unique approach to value investing, Miller's traditional value roots run deep. "All value investors have influenced me," he says. In particular, "Ernie Kuehne, my 82-year-old colleague, focused on businesses' potential earning power, on what the business could be."
In short, there appears to be as much art as science in Miller's work. In discussing his approach to value investing, Miller recounts an epiphany of sorts during which he reviewed his approach to assessing value and determined that there was room in the equation for more judgement about the futurea greater reliance on looking forward than looking backa need to project "free cash flows" based on reasonable expectations. As for technology, "My experience with IBM in the early 90's helped me to understand that business. I understand the economics. The rapid pace of change will help many technology companies, but companies must have a continuity of technology and a sustainable competitive advantage."
Bill Miller clearly takes value investing to a new dimension.
And the Winners Are?
Dot-Coms are laying off employees. eBay customers sue for damages alleged to have been caused by false claims. WorldCom announces it is getting out of the consumer telephone business. Deutsche Telekom (the German telecommunications giant) bids for VoiceStream (one of the U. S.'s largest wireless communications companies), and DT's stock drops by 7%. Barron's reports that numerous Internet companies are "burning cash" and many may be insolvent in the months to come. Many of last year's big tech winnersAOL, Qualcomm, Amazon.Com, Priceline.comare selling at roughly 50% or less of last year's highs. And on August 7, Merrill Lynch's Internet analyst downgraded his opinions on 11 of the 29 Web stocks he follows.
Yet usage of the Internet has exploded. People use their cell phones in their cars, in restaurants, at the Jitney, and foreign sales of cell phones have skyrocketed. (National Public Radio reports that in Finland, home to Nokia, the world's largest producer of cell phones, 70% of the population has cell phones.) Telecom companies worldwide bid huge sums of money for the rights to serve Brazil, Germany, South Korea and others. And, intuitively, we all know the world has changed.
..."tweak" to the model has allowed him to buy stocks in a number of companies that would escape the usual value investor's radar screen...
