Guru Speak : Bill Miller

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: Bill Miller is best known as the portfolio manager of Legg Mason Value Trust, which since inception has earned around 15.25% average annual total returns. He is also known to be the only fund manager that has outperformed the S&P500 for 15 consecutive years. He is a buy-and-hold investor whose eternal search is to seek out stocks that are available at a steep discount to their intrinsic value and keep them till it is corrected. Miller is also known to focus on cash earnings, not accounting-based valuation measures. He attributes two factors to this success: exhaustive security analysis and portfolio construction.

Here some valueable nuggets of Miller’s wisdom.

* I often remind our analysts that 100% of the information you have about a company represents the past, and 100% of a stock's valuation depends on the future.

* The market does reflect the available information, as the professors tell us. But just as the funhouse mirrors don't always accurately reflect your weight, the markets don't always accurately reflect that information. Usually they are too pessimistic when it's bad, and too optimistic when it's good.

* What we try to do is take advantage of errors others make, usually because they are too short-term oriented, or they react to dramatic events, or they overestimate the impact of events, and so on.

* We own low PE and we own high PE, but we own them for the same reason: we think they are mispriced. We differ from many value investors in being willing to analyse stocks that look expensive to see if they really are. Most, in fact, are, but some are not.

* Value investing means really asking what are the best values, and not assuming that because something looks expensive that it is, or assuming that because a stock is down in price and trades at low multiples that it is a bargain.

* Sometimes growth is cheap and value expensive. The question is not growth or value, but where is the best value

* The problem is that real risk and perceived risk are two different things. And that's where people get into trouble, because they perceive risk to be high when prices are low, and they perceive risk to be low when prices are high. That's the psychological problem that most people have.