Bill Miller and Value Trust - Bill Miller and Value Trust...

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Bill Miller and Value TrustIntroductionWilliam H. Miller III or Bill Miller is the Chairman and former Chief Investment Officerof Legg Mason Capital Management. He is also the former portfolio management for the LeggMason Capital Management Value Trust, a mutual-fund company, where he beats the benchmarkindex, the Standard & Poor’s 500 Index (S&P 500) for 14 consecutive years from 1991 through2005. Miller consistently received a better result than the index during both the bull market onthe late 1990s and the bear market on the early 2000s. Over the 15 years, the Value Trust has gainremarkable returns with an average of annual total return of 14.6% which is 3.67% higher thanthe S&P 500.Over the short-term period, some fund managers can beat Miller’s record and get the bestoverall performance. However, no one can beat his consistency in index-beating record. Miller’sresult also contradicts to the conventional theories in the mutual fund markets which has highcompetition, easy entry, and informational efficiency. The theories say it would be very difficultto beat the market in the long-run, but Miller did it using his own strategies.Problem DefinitionThe Efficiency Market Theory states that the security price is fully reflected by allavailable information in the market. The theory means that most money managers cannot beat abuy and hold policy on a risk adjusted basis, and a portfolio manager without superior analystshould measure the risk-preferences, risk asset, risk free asset and hope the best. The theorysimply suggests that perhaps Bill Miller is just lucky in beating the market for 14 years. TheEfficiency Market Theory is indeed true, but Bill Miller’s outstanding performance cannot besolely based on luck to beat the market. He used the information that the market has provided,and did extra research to get additional information about the company securities’ condition.
Most of his investments were value stocks which sometime has higher risk, and he was not

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Term
Spring
Professor
Iwanowycz
Tags
Finance, Business, Management, International Finance, Return On Investment ROI, William H Miller III, Value Trust

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