Time to Get Offensive In This 'Panic Zone': Exerpt from Bill Miller's conference call

Discussion in 'Trading' started by ByLoSellHi, Apr 10, 2008.

  1. Sneer at him if you will, as he's had a rough recent patch.

    But don't underestimate a man who radically outperformed the S&P, Dow, and Nasdaq index for 16 CONSECUTIVE YEARS - an unrivaled performance.

    Short the crap out of crap, and maybe the indexes for a while, but look for the gems that have been thrown out with the bathwater NOW.

    There's a lot of wisdom in his words. Invest in high quality, debt free stocks when they've been beaten down to the curb, because they will bounce back with a vengeance when rationality returns.

    "Excerpts From Bill Miller's Jan. 17 Conference Call

    These sorts of periods provide opportunities on a longer-term basis. In the last 20 years, we've had six financial panics similar to this one in order of magnitude. And it's always funny to me how people's memories change.

    I was reading somebody who was talking about how, "This one is so bad because it's not like the other ones. It's not like the tech bubble which got over fairly quickly." And I'm thinking, the tech bubble got over quickly? It was a three-year bear market -- the worst since the Great Depression. But now that it's over, and it was five years ago, it seems to have gotten over quickly.

    And I think what you'll see in the next six months to a year is this will be over -- and then within the next couple of years, people will be talking about this being over quickly, as well. It's never quickly when you're in it. But it always seems quick after you're out of it and things are going well.

    What I learned from 1990 is it's too late to sell stuff that's down and get a little bit more defensive just because things are falling. As things fall, you've got to play more and more offense, not defense.

    So the people that have a lot of financials, homebuilders, retail or consumer discretionary right now -- those are the portfolios that it's way too late to think about playing defense. Those portfolios should be positioned offensively to really benefit maximally when things get better -- as they undoubtedly will.

    I think that right now is the time to begin to get more aggressive.... The market and the psychology has officially entered a "panic zone" right now. And those panics typically last from as low as eight days -- that was how long the panic lasted to the bottom of the market in 1990 -- to about a month or two at the very outside.

    So you're looking at somewhere between the next week and two months to give you one of the best buying opportunities we've seen since July of '02.

    Shareholder Question: The comment that we're getting from clients is: "This time is different. It's worse than the prior crises." How do you respond to that?

    Miller: Well, every time is somewhat different. But to say it's worse...I mean, the '02 collapse was such that you had companies like AES, which was $75 in 1999, trade at 75 cents in 2002. So you had junk bond spreads blown out to the highest level in history. I think what you have in every crisis like this is something which is "the worst it's ever been" -- but that doesn't mean that the crisis is the worst there's ever been. The reason you have a crisis is in something, it's the worst there's ever been.

    In this one, the damage to big financials' balance sheets -- the losses they are taking -- is the worst it's been since the Great Depression. And in some companies, it's the worst it's been in history -- like Bear Stearns, or Merrill Lynch. But that doesn't mean the crisis is the worst it's ever been.

    In fact, if you talk to any of the big industrial companies, like the fertilizer companies, they're telling you things are great. The unemployment rate is still 5% -- it's not 8% or 10% -- and we still have economic growth.

    So we haven't even gone into a recession yet -- at least we don't have one officially. And interest rates are down with the 10-year sitting at 370. And the market is not that far off its all-time high, right? We're 10% to 15% maximally below that.

    So I have a hard time seeing how this is such a catastrophe..."
  2. Be more specific about the "timing" of that.
  3. mokwit


    The principle is not wrong, in fact it is dead right, but timing and stock selection are everything. To me he is making excuses for his not selling CFC, buying BSC and IMHO buying too early which could cost his fundholders a lot of lost time and money. He is also using very slanted examples. Citing a fertilizer company in a commodities boom as an examlpe that the economy is just fine is BS, as is his use of AES as an xample. Utilities business is fairly stable - I can't help but think that AES was sold off incorrectly in sympathy with Enron.

    If as he says we are not in recession yet then he is definitely too early. The natural course of things is being delayed by unprecedented government intervention. So far no major homebuilder has gone bankrupt. Maybe they won't with a "no homebuilder left behind " policy to go along withh the "no bank left behind" policy. IMHO he is too early and it may be more than the 6 months he states before this is over. Granted at his size you can only buy when the liquidity is there but if you buy a stock that goes down 50% then it has to go up 100% before you even breakeven.

    Bacially Miller is a pseudo value investor i.e. performance relative to index not absolute, and to me he seems to buy stocks off their highs, rather than buying with a margin of safety - the hallmark of true value investing.
  4. he messed up big time, he had it wrong about risk spreads a year ago. he also made a huge error going for financials instead of commodity related stocks.

    i have no clue how someone that beats the market for over a decade can just mess up like he did in analyzing what should be obvious to any smart investor.
  5. Very fine line between a value stock and a value trap.
  6. the dude could be a fluke/outlier who has been lucky for 16 years.
  7. he even said it himself that his 15 yr record (not 16) is a numerical fluke; just the result of the measurement being taken at the end of the year. Had you used different measuring points he would have underperformed some years.

    Overall it's probably better to measure aggregate gains, 1000$ invested in his fund since inception compared to 1000$ invested at the S&P500 and compare the difference. But his 15yr stretch is a great marketing tool for his fund.
  8. imo it would be best to see a 3 year rolling average