Bill Miller'comment หลังจาก Beat Market เป็นปีที่ 15 ติด
โพสต์แล้ว: อังคาร ม.ค. 31, 2006 4:55 am
ลองเปิดใจอ่านดูนะครับ วิธีเล่นหุ้นของ Fund Manager คนเดียวในโลกขณะนี้ที่สามารถ Beat S&P500 15 ปีติดต่อกันได้ เป็นความเห็นที่ท้าต่อยคนส่วนใหญ่ในตลาดมากๆ ทั้งคนที่ใช่และไม่ใช่ VI :D
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Excerpt from 2006 Bill Miller's commentary Quarter 1...
===================================
You are probably aware that the Legg Mason Value Trust has outperformed the S&P 500
index for each of the past 15 calendar years. That may be the reason you decided to
purchase the fund. If so, we are flattered, but believe you are setting yourself up for
disappointment. While we are pleased to have performed as we have, our so-called
streak is a fortunate accident of the calendar. Over the past 15 years, the December to
December time frame is the only one of the twelve month periods where our results have
always outpaced those of the index. If your expectation is that we will outperform the
market every year, you can expect to be disappointed. We would love nothing better than
to beat the market every day, every month, every quarter and every year. Unfortunately,
when we purchase companies we believe are mispriced, it is often difficult to determine
when the market will agree with us and close the discount to intrinsic value. Our goal is
to construct portfolios that have the potential to outperform the market over an
investment time horizon of 3-5 years without assuming undue risk. If we achieve that
goal, we believe we will be doing our job, whether we beat the market each and every
year or not.
What you should expect is for us to follow a sensible investment philosophy that you
understand and agree with, and that you think will enable you to achieve your investment
objectives, consistent with your risk tolerance and your investment time horizon. Our
investment philosophy applies what we believe are the best analytical skills and resources
available to reach investment decisions for your portfolio.
What follows is a brief, and by no means complete, description of how we think about
investing. If you find it congenial, that is great. If you dont, or you are uncomfortable
with it, or it does not fit your psychology, then you probably should not be in this fund.
We are value investors. We take both of those terms seriously: we value businesses, and
not just stocks, and we invest in them long term. We do not buy stocks based primarily
on accounting based relationships such as price earnings or price to book value or cash
flow (although we carefully consider these metrics and many others besides), and we do
not sell when the securities we own reach some pre-determined target based on the
relation of price to such metrics as may have prevailed in the past (though we also take
that into consideration).
As value investors, we are valuation driven. The most common error in investing is
confusing business fundamentals with investment merit. A company that is doing
terrifically well, that has great management and returns on capital, and great products and
prospects, may be a terrible investment if the expectations embedded in the current
valuation are in excess of those fundamentals. A company with poor business
fundamentals, a mediocre management, and indifferent prospects may be a great
investment if the market is even more pessimistic about the business than is warranted.
The most important question in investing is what is discounted, or put slightly differently,
what are the expectations embedded in the valuation? We believe markets are
pragmatically efficient, which means that it is very difficult to analyze the available
information about a company and use that to outperform a relevant benchmark. The
evidence in favor of that proposition is over-whelming, as any look at the percentage of
money managers who are able to outperform over long periods of time will readily attest.
Systematic outperformance requires variant perception: one must believe something
different from what the market believes, and one must be right. This usually involves
weighting publicly available information differently from the market, either as to its
magnitude or its duration. More simply, the market is either wrong about how important
something is, or wrong about when that something occurs, or both.
This all sounds fine, maybe even conventional. You may be thinking, of course one needs
to think independently, one needs to value things carefully. It becomes clear how well
these generalities are understood only when they become specific investments.
Was Google good value at $85 when it came public? Well, it appears so, since it is now
trading at $436 a year and a half later. But when it came public it was universally panned
as another internet hype stock with all the trappings of 1999s over-optimism.
How about now, at $436? Is it worth as much as IBM? The market says it is, at least on
the basis of simple equity capitalization. How can that be? IBMs earnings are more than
Googles sales. We owned Google on the IPO and we own it now. We own IBM, too.
Is the largest financial services company in the world, Citigroup, really worth a
substantial discount to the average company based on its price earnings ratio, despite
having substantially better returns on its equity and a powerful global presence? The
market says yes. We disagree and that is why we own it.
How about Kodak? Doesnt everyone know chemical-based film is going away? How
could you own that? We are asked that all the time. We are Kodaks largest shareholder.
Sometimes we are right when we think the market is wrong, and sometimes we are not.
One never knows until later, and then hindsight bias colors the analysis. It always appears
obvious in retrospect. We were right, for example, to buy Tyco under $10 when it was
involved in an accounting scandal. We were wrong to buy Enron when it was also
involved in such a scandal. Our analysis of Enron was excellent, in my opinion, despite
our investment being unsuccessful. Process and outcome are two different things.
Our positions are usually regarded as contrarian, which means that most people who look
at them will not like them. If you are uncomfortable owning controversial stocks, stocks
involved in scandals, stocks whose prospects are uncertain, or which are considered, too
risky because the valuation looks too high, or the company has too much debt, or it has
poor prospects, you should not own this fund.
We are often asked, what is the secret to the funds success? The answer, of course, is
there is no secret; but there are some aspects of what we do that differentiate us from
other investors, and from other value investors.
I would highlight three:
1. Our portfolio contains a mix of businesses, some of which we believe are
cyclically mis-priced, and some of which we believe are secularly mis-priced.
The former are often called value stocks, the latter growth stocks, not helpfully in
either instance. Value investors rarely own so-called growth stocks because they
are uncomfortable with doing the kinds of analysis and projections necessary to
value them, especially when they involve high technology, or when they involve
new business models such as Google. There is a lot of uncertainty in doing that,
which means risk, and value investors think of themselves as risk averse. We
believe we have an analytical advantage over more traditional value investors
because we will look at such businesses, and over growth investors because our
analysis of them is based on valuation, not some short-term factor such as whether
they beat next quarters earnings estimate, or whether guidance is raised or
lowered. Our ability to properly price risk is our advantage over both types of
investors.
2. We average down relentlessly. Two things seem pretty clear to me: first, no one
can consistently buy at the low or sell at the high (except liars, as Bernard Baruch
said), and second, lowest average cost wins. We constantly strive to lower the
average cost of our positions by buying more if and when the price drops.
Throwing good money after bad, others call it. Many investors think a drop in the
price of stocks they own is evidence they were wrong. We think of it as an
opportunity to increase our implied rate of return by lowering our average cost.
Someone once asked me how I knew when we were wrong to do that. When we
can no longer get a quote, was my answer.
3. We practice the Taoist wei wu wei, the doing not doing as regards our
portfolio, otherwise known as creative non action. We are mostly inert when it
comes to shuffling the portfolio around, with turnover that has averaged in the 15
to 20% range, implying holding periods of more than 5 years. Many funds have
turnover in excess of 100% per year, as they constantly react to events or try to
take advantage of short term price moves. We usually do neither. We believe
successful investing involves anticipating change, not reacting to it.
The combination of these three things means we manage money substantially differently
from most other managers. Different doesnt necessarily mean better, but it does mean
different!
I hope the foregoing has been helpful. If you understand what we do, you should be
better able to judge how well we are doing it. We have our own money invested
alongside yours because our team believes this is the way we will build wealth for our
own families along with our shareholders. As we have said to our shareholders over the
years, we cannot promise performance, but we can promise no one will care more about
your money or work harder for you than our investment team.
Bill Miller
1/19/06
===================================
Excerpt from 2006 Bill Miller's commentary Quarter 1...
===================================
You are probably aware that the Legg Mason Value Trust has outperformed the S&P 500
index for each of the past 15 calendar years. That may be the reason you decided to
purchase the fund. If so, we are flattered, but believe you are setting yourself up for
disappointment. While we are pleased to have performed as we have, our so-called
streak is a fortunate accident of the calendar. Over the past 15 years, the December to
December time frame is the only one of the twelve month periods where our results have
always outpaced those of the index. If your expectation is that we will outperform the
market every year, you can expect to be disappointed. We would love nothing better than
to beat the market every day, every month, every quarter and every year. Unfortunately,
when we purchase companies we believe are mispriced, it is often difficult to determine
when the market will agree with us and close the discount to intrinsic value. Our goal is
to construct portfolios that have the potential to outperform the market over an
investment time horizon of 3-5 years without assuming undue risk. If we achieve that
goal, we believe we will be doing our job, whether we beat the market each and every
year or not.
What you should expect is for us to follow a sensible investment philosophy that you
understand and agree with, and that you think will enable you to achieve your investment
objectives, consistent with your risk tolerance and your investment time horizon. Our
investment philosophy applies what we believe are the best analytical skills and resources
available to reach investment decisions for your portfolio.
What follows is a brief, and by no means complete, description of how we think about
investing. If you find it congenial, that is great. If you dont, or you are uncomfortable
with it, or it does not fit your psychology, then you probably should not be in this fund.
We are value investors. We take both of those terms seriously: we value businesses, and
not just stocks, and we invest in them long term. We do not buy stocks based primarily
on accounting based relationships such as price earnings or price to book value or cash
flow (although we carefully consider these metrics and many others besides), and we do
not sell when the securities we own reach some pre-determined target based on the
relation of price to such metrics as may have prevailed in the past (though we also take
that into consideration).
As value investors, we are valuation driven. The most common error in investing is
confusing business fundamentals with investment merit. A company that is doing
terrifically well, that has great management and returns on capital, and great products and
prospects, may be a terrible investment if the expectations embedded in the current
valuation are in excess of those fundamentals. A company with poor business
fundamentals, a mediocre management, and indifferent prospects may be a great
investment if the market is even more pessimistic about the business than is warranted.
The most important question in investing is what is discounted, or put slightly differently,
what are the expectations embedded in the valuation? We believe markets are
pragmatically efficient, which means that it is very difficult to analyze the available
information about a company and use that to outperform a relevant benchmark. The
evidence in favor of that proposition is over-whelming, as any look at the percentage of
money managers who are able to outperform over long periods of time will readily attest.
Systematic outperformance requires variant perception: one must believe something
different from what the market believes, and one must be right. This usually involves
weighting publicly available information differently from the market, either as to its
magnitude or its duration. More simply, the market is either wrong about how important
something is, or wrong about when that something occurs, or both.
This all sounds fine, maybe even conventional. You may be thinking, of course one needs
to think independently, one needs to value things carefully. It becomes clear how well
these generalities are understood only when they become specific investments.
Was Google good value at $85 when it came public? Well, it appears so, since it is now
trading at $436 a year and a half later. But when it came public it was universally panned
as another internet hype stock with all the trappings of 1999s over-optimism.
How about now, at $436? Is it worth as much as IBM? The market says it is, at least on
the basis of simple equity capitalization. How can that be? IBMs earnings are more than
Googles sales. We owned Google on the IPO and we own it now. We own IBM, too.
Is the largest financial services company in the world, Citigroup, really worth a
substantial discount to the average company based on its price earnings ratio, despite
having substantially better returns on its equity and a powerful global presence? The
market says yes. We disagree and that is why we own it.
How about Kodak? Doesnt everyone know chemical-based film is going away? How
could you own that? We are asked that all the time. We are Kodaks largest shareholder.
Sometimes we are right when we think the market is wrong, and sometimes we are not.
One never knows until later, and then hindsight bias colors the analysis. It always appears
obvious in retrospect. We were right, for example, to buy Tyco under $10 when it was
involved in an accounting scandal. We were wrong to buy Enron when it was also
involved in such a scandal. Our analysis of Enron was excellent, in my opinion, despite
our investment being unsuccessful. Process and outcome are two different things.
Our positions are usually regarded as contrarian, which means that most people who look
at them will not like them. If you are uncomfortable owning controversial stocks, stocks
involved in scandals, stocks whose prospects are uncertain, or which are considered, too
risky because the valuation looks too high, or the company has too much debt, or it has
poor prospects, you should not own this fund.
We are often asked, what is the secret to the funds success? The answer, of course, is
there is no secret; but there are some aspects of what we do that differentiate us from
other investors, and from other value investors.
I would highlight three:
1. Our portfolio contains a mix of businesses, some of which we believe are
cyclically mis-priced, and some of which we believe are secularly mis-priced.
The former are often called value stocks, the latter growth stocks, not helpfully in
either instance. Value investors rarely own so-called growth stocks because they
are uncomfortable with doing the kinds of analysis and projections necessary to
value them, especially when they involve high technology, or when they involve
new business models such as Google. There is a lot of uncertainty in doing that,
which means risk, and value investors think of themselves as risk averse. We
believe we have an analytical advantage over more traditional value investors
because we will look at such businesses, and over growth investors because our
analysis of them is based on valuation, not some short-term factor such as whether
they beat next quarters earnings estimate, or whether guidance is raised or
lowered. Our ability to properly price risk is our advantage over both types of
investors.
2. We average down relentlessly. Two things seem pretty clear to me: first, no one
can consistently buy at the low or sell at the high (except liars, as Bernard Baruch
said), and second, lowest average cost wins. We constantly strive to lower the
average cost of our positions by buying more if and when the price drops.
Throwing good money after bad, others call it. Many investors think a drop in the
price of stocks they own is evidence they were wrong. We think of it as an
opportunity to increase our implied rate of return by lowering our average cost.
Someone once asked me how I knew when we were wrong to do that. When we
can no longer get a quote, was my answer.
3. We practice the Taoist wei wu wei, the doing not doing as regards our
portfolio, otherwise known as creative non action. We are mostly inert when it
comes to shuffling the portfolio around, with turnover that has averaged in the 15
to 20% range, implying holding periods of more than 5 years. Many funds have
turnover in excess of 100% per year, as they constantly react to events or try to
take advantage of short term price moves. We usually do neither. We believe
successful investing involves anticipating change, not reacting to it.
The combination of these three things means we manage money substantially differently
from most other managers. Different doesnt necessarily mean better, but it does mean
different!
I hope the foregoing has been helpful. If you understand what we do, you should be
better able to judge how well we are doing it. We have our own money invested
alongside yours because our team believes this is the way we will build wealth for our
own families along with our shareholders. As we have said to our shareholders over the
years, we cannot promise performance, but we can promise no one will care more about
your money or work harder for you than our investment team.
Bill Miller
1/19/06