Fellow Fool Adam Wiederman recently asked a profound question: "Was Bill Miller just lucky?"
Legg Mason's (NYSE:LM) rock-star money manager led his niche-redefining Legg Mason Value Trust (LMVTX) mutual fund on a torrid run, amassing a Gherig-esque 15 consecutive years of beating the S&P 500.
Then mortality struck in 2006 -- and again in 2007. Now, barring a second-half miracle, his fund will lose big time to the index for a third consecutive year.
"Despite what you've read, Miller’s 15-year streak can't be attributed solely to luck," Wiederman wrote, and I completely agree. Miller's skill in dipping into growth-stock waters, picking the right tech and health-care stocks to go along with his steady diet of financials, is unquestionably genius. The guy smoked the market and cooked his peers.
"His recent underperformance is not a sign of a poor process and questionable skill, but a sign of being a little early to the party that's likely to start," Wiederman also wrote. There, I completely disagree.
Miller didn't arrive early to the party. He simply forgot to leave when the cops shut it down. Bill Miller wasn't lucky then, just as he isn't unlucky now. A fund manager earns every grade. The real question to ask is whether the game has passed Miller by.
Shake a Legg
Money managers are human. They make mistakes. However, Miller's oversized bet on wobbly-kneed financials, moribund health-care providers, and overpriced tech stocks is crushing his legacy.
Miller hasn't simply hit a few bad breaks. His fund has shed nearly 30% of its value this year alone. Yes, it's a rough-and-tumble market, but certainly not that rough and tumbling. Putting too many chips on the table in backing dividend-slashing Citigroup (NYSE:C), fading Sears Holdings (NASDAQ:SHLD), and the dust-collecting time capsule that Time Warner (NYSE:TWX) has become hasn't helped.
Miller's fund has lost ground over the past one-year, three-year, and five-year periods. Over the past 10 years, the fund's annualized returns have been a puny 2.18%, actually losing to the S&P 500 in that time. Miller may be less than three years removed from his head-turning streak, but his fund has failed to beat the market over the past decade.
That's the reality, and I'm not willing to give Miller a free pass just because he made some great calls back in the day.
Morningstar (NASDAQ:MORN) isn't even showing Miller a whole lot of love these days. His fund is drawing a one-star rating, the lowest grade available. The mutual fund researcher booted Miller's fund from its Analyst Picks list in 2003, a few years before his market-stomping streak ended. The high expense ratio was a sticking point at the time. Now, the real sticking point is performance.
The Microhoo miscue
Sloppy scorecards aren't the only things making Miller feel pedestrian these days. His words are also coming back to haunt him.
As a large Yahoo! (NASDAQ:YHOO) shareholder, Miller was vocal about Microsoft's (NASDAQ:MSFT) offer to acquire the company for $31 a share. He suggested that Microsoft would have to raise its bid to win Yahoo!'s fancy. As one of Yahoo!'s largest shareowners -- his fund owned 80 million shares at the time -- we may never know whether his influence was one of the reasons why Yahoo! foolishly held out for more. All we know is that Microsoft tired of dangling its generous offer and walked away, slashing Miller's stake in the process.
In the end, Miller's legacy is in his own hands. When I suggest that the game has passed him by -- failing to beat the market over the past 10 years should be long enough to back up that assertion -- it's up to him to prove me, and more importantly his shareowners, wrong.
Sometimes, a great investor slips. Remember when folks felt that the investing game had passed Warren Buffett by, after he missed out on the dot-com boom? He certainly got the last laugh there.
Miller may very well have what it takes to win his way back into the mutual fund industry's Hall of Fame. Man, I hope so. There's no joy in watching one of the good guys go down on a bad note. However, until he does come back -- and he has a ton of losses to make up -- any hero-worship is wasted here.
More Miller time:
