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Bill Miller Calls a Market Bottom

Storied value investor Bill Miller said yesterday at an annual Legg Mason (NYSE: LM  ) luncheon that it "looks as if the bottom has been made in U.S. equities". No one must be hoping this is truer than Miller himself, who's had an absolutely atrocious run over the last several years after a 15-year winning streak against the S&P 500. His flagship Legg Mason Value Trust fund has lost almost 60% year-to-date versus a 41% loss for the S&P 500:

Value Trust Top 7 Holdings
(as of Sept. 30. 2008)

% of Assets

YTD Performance
(as of Dec. 2, 2008) (Nasdaq: AMZN  )



AES Corporation



Aetna (NYSE: AET  )



Citigroup (NYSE: C  )



UnitedHealth Group (NYSE: UNH  )



Sears Holdings (Nasdaq: SHLD  )



eBay (Nasdaq: EBAY  )



Benchmark: S&P 500 (Total Return)



By his own admission, Miller misjudged the scope and severity of the current crisis. Given that he has the self-awareness to admit that, I'm surprised he would even try to call a bottom in the market, particularly in a period when the market is guided by a hand that is more irrational than invisible. Once fear and uncertainty take over, it's pretty well useless to call any bottom (other than zero).

Bottom or not, stocks are cheap here
Still, Miller did share a very valuable insight: U.S. stocks are inexpensive. In fact, he went so far as to say that "every sector... has companies that represent... exceptional value". You won't find me disagreeing: At the end of October, I wrote that the Dow looked no worse than fairly valued at 8,991 – 5% higher than it is now. If you have cash that you can invest over a minimum period of 10 years, be aware that stocks should provide acceptable returns from these levels.

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Alex Dumortier, CFA has no beneficial interest in any of the companies mentioned in this article. Unitedhealth Group, Sears Holdings, and Legg Mason are Motley Fool Inside Value picks. UnitedHealth Group, eBay, and are Motley Fool Stock Advisor picks. The Fool owns shares of Unitedhealth Group and Legg Mason. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (20) | Recommend This Article (21)

Comments from our Foolish Readers

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  • Report this Comment On December 04, 2008, at 5:03 PM, cmolinel wrote:

    "If you have cash that you can invest over a minimum period of 10 years, be aware that stocks should provide acceptable returns from these levels."

    Frankly, that is as saying that after the rain comes, it will stop. Even myself knows that before ten years you will get a decent return.

    But what I would like to know from my subscription is something more.

  • Report this Comment On December 04, 2008, at 5:10 PM, cmorr504 wrote:


  • Report this Comment On December 04, 2008, at 5:51 PM, edbbear wrote:

    I can't believe he's got so much money in AMZN, C and Sears. Those are all high risk plays I would rather short than buy. The fact he's got so much in them tells me this guy has nothing left to lose and is risking it all on a big comeback. Jeepers--that is one scary portfolio.

  • Report this Comment On December 04, 2008, at 6:15 PM, TMFAleph1 wrote:

    cmolinel & cmorr504,

    Thanks for your comments. If the proposition that stocks will provide acceptable returns over the next 10+ years is so widely known, why are equity mutual funds currently suffering record withdrawals?

    Furthermore, this article appears on the free section of the website -- it's not part of a subscription product. Since you're not paying anything to read this article, I'd say you're getting more than your money's worth.

  • Report this Comment On December 04, 2008, at 8:58 PM, mickeyc21 wrote:

    Miller has called bottom three times so far this year.

    Not sure why it matters that he is doing it again.

    If you call for the bottom every day you'll be able to say you called the exact day stocks bottomed.

  • Report this Comment On December 04, 2008, at 9:22 PM, TMFAleph1 wrote:


    Thanks for your comment. As I noted, the point isn't whether or not we have reached a bottom -- that's something no-one knows -- the point is that stocks are no longer expensive.

  • Report this Comment On December 04, 2008, at 10:07 PM, GroundedinGraham wrote:

    How can one say that stocks are no longer expensive? P/E rations of some stocks have reached acceptable levels for consideration for purchase -- but these "value" P/E ratios are based on a viable economy -- which we don't now appear to have. The only relative "value" in today's markets is in comparison to the silliness of valuations over the last three to five years. And look where those valuations took investors. We all need to pull out our economic textbooks, take a deep breath, and watch others lose money for a while more before the market bottoms. And not turns -- a bottom is not a turn, not initially, as Japan demonstrated so conclusively when its bubble burst. Once we hit the bottom, the markets can submarine painfully along it for some time before starting to surface. And that's what's most likely to happen.

  • Report this Comment On December 04, 2008, at 10:29 PM, TMFAleph1 wrote:


    I'm basing myself on the market's cyclically-adjusted P/E ratio, which doesn't suffer from the bias you refer to (at least not anywhere near to the same degree).

  • Report this Comment On December 04, 2008, at 11:24 PM, RobtheWrecker wrote:

    He didn't exactly call the bottom. He said that the current market exhibits several characteristics of a market bottom. That is a far cry from actually "calling the bottom"

  • Report this Comment On December 05, 2008, at 1:53 AM, WhiteMamba wrote:

    Calling a bottom? More like praying for a bottom.

    The George Costanza, doing the opposite of what makes sense, "value" approach to investing is kaput.

    Dodge & Cox and Bill Miller are now bleeding to death from all the falling knives they've tried to catch lately.

    Watch as funds reopen to new investors because of "all the value we see in the market today" and "we see a lot of cheap stocks right now". It has nothing to do with all the people withdrawing money from their funds. Right.

    The Ponzi scheme is over. But like it says in the fine print:

    Past performance is not indicative of future returns.

    (They warned you)

  • Report this Comment On December 05, 2008, at 4:32 AM, wuff3t wrote:


    "Why are you surprised that Bill Miller would try to call a bottom when you yourself called a bottom based on a high VIX level back in October?"

    He didn't call a bottom, did he? According to your own comment he actually said there was a "buying signal". That's not necessarily the same thing. If you believe that stocks are inexpensive then it's time to start thinking about buying. Whether or not you think it's the precise market bottom isn't really the point: if you believe stock prices are going to increase relative to their current position - even if you think they might fall further from here - then it follows that there are bargains out there to be had.

  • Report this Comment On December 05, 2008, at 9:53 AM, SkepticalOx wrote:

    "If you have cash that you can invest over a minimum period of 10 years, be aware that stocks should provide acceptable returns from these levels."

    -- Yeah, if you exit when the market is high. What happened to the last 10 years after inflation? Many refer to it as the "lost decade" for a reason (if you, for example, invested a lump sum 10 years ago in the index).

  • Report this Comment On December 05, 2008, at 10:34 AM, TMFAleph1 wrote:


    I refer you to the comments by wuff3t and RobtheWrecker: I'm not interested in calling market bottoms because I don't think it can be done. I am, however, interested in looking for situations in which stocks are reasonably priced. Whether or not stocks went lower within a month of the previous article's publication is no concern of mine and doesn't in any way invalidate what I wrote.

    I write for patient, long-term investors with a 10-year plus time horizon -- there is no point trying to evaluate what I write on a month-to-month basis. If your time horizon is shorter than that, I recommend you avoid reading my columns.

  • Report this Comment On December 05, 2008, at 11:48 AM, SteveTheInvestor wrote:

    Seems a little self serving for Miller to make a statement like that. I'm sure his fund has been ravaged by redemptions and account closings. He doesn't know any more than I do when the market will bottom, though I can say with certainty that it will stop going lower when it hits zero. If he had the slightest clue what the market would do, his fund wouldn't have fallen so horribly to begin with.

    Seems more like Miller is trying to recruit depositors. I'll pass, but thanks anyway Bill.

  • Report this Comment On December 05, 2008, at 11:48 AM, TMFAleph1 wrote:


    I never asserted that a 10-year holding period is a sufficient condition to earn acceptable returns. Not every entry point will provide an adequate return over the following ten years -- that's why the insight that stocks are now no longer expensive is valuable. Ten years ago, stocks were overvalued; it follows that those who bought them at that time have earned disappointing returns to date.

  • Report this Comment On December 05, 2008, at 12:26 PM, wuff3t wrote:


    No, I'm not saying Alex's buy signal on 23rd October was a good call. I'm saying - as Alex himself has been at pains to point out - that we can't possibly judge that this soon after the call.

    What I am saying is that if one of the Fool writers believes stocks to be seriously undervalued right now, he or she is perfectly entitled to say so. There wouldn't really be much point reading their articles if they didn't express an opinion one way or the other, would there?

    And we can all choose to disagree if we like - but only after a suitable time period. If you read a lot of TMF articles I don't think you'll find a single author ever claiming to be a genius because one of their calls was up a month later: TMF judges both success and failure by the same, long-term timescales.

    Whether you like the site or not, they do stick to their principles...

  • Report this Comment On December 05, 2008, at 1:09 PM, TMFAleph1 wrote:


    Please show me where I called a market bottom. There is an important and substantial difference between highlighting a possibly buying opportunity for long-term investors and calling a market bottom, something I have never tried to do.

  • Report this Comment On December 05, 2008, at 2:55 PM, TMFAleph1 wrote:


    Thanks for your questions. I'll be happy to give you some elements on the relationship between the VIX and attractive buying opportunities when I have a little bit more time.

    However, please stop misrepresenting what I wrote:

    1.) I never called a market bottom;

    2.) I never criticized Bill Miller for the remarks you cite. In fact, if you take the time to read my article, this is what I wrote: "Still, Bill Miller, did share a very valuable insight: U.S. stocks are inexpensive."

    What I did was express surprise that an investor of Bill Miller's experience and orientation would try to call a market bottom, which I think is a waste of time.

  • Report this Comment On December 05, 2008, at 9:56 PM, TMFAleph1 wrote:


    To see why the VIX may provide investors with a hint that stock market have become attractive, take a look at the following graph:

    I want to be very clear, though, a spike in the VIX is by no means sufficient to conclude that equity valuations are attractive -- it is but a single element that would need to be corroborated by others before coming to any sort of considered conclusion.

    By the way, you are very lucky to be living in Montana -- it's a beautiful state!

  • Report this Comment On December 07, 2008, at 12:01 AM, dividendgrowth wrote:

    The bottom won't be reached until Bill Miller has been fired.

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