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One fund manager who'll not follow the herd


If you invest your money with Bill Miller, be prepared for lessons in philosophy, baseball strategy, even Shakespeare.

Mr. Miller, a funds manager for Legg Mason Wood Walker Inc., knows that some find investing daunting, and he wants his clients to understand where he's coming from. His philosophy: Buy low, invest for the long-term and never follow the herd.

Although his views aren't that involved, he tries to convey them often and in ways that people easily grasp. Unlike the writers of some newsletters that are as obscure as the tax code, Mr. Miller preaches his strategy in public speeches and investment newsletters sent to shareholders four times a year through fresh, interesting anecdotes.

In March, for instance, he gave readers a lesson in investment acumen by reminding them of Earnshaw Cook's "now forgotten" book "Percentage Baseball."

"After exhaustively studying the statistical history of various baseball strategies he concluded that teams were not maximizing their chances of winning, they were following conventional wisdom that was not well suited to their professed objectives. All of his recommendations were statistically sound, well documented, and completely ignored."

Mr. Miller's point: Don't follow the crowd.

He found insight from the O. J. Simpson trial when writing about "analytic detritus" that suffocates most people.

"Suppose you buy a stock on Monday, and on Tuesday, while you are engrossed in the O. J. Simpson trial, it drops due to bad news. On Wednesday, though, it recovers to close higher than your purchase price. If you had been glued to CNBC on Tuesday when the news hit, and had observed the stock falling, you may have been prompted to act on the news, especially if the stock was reacting to it."

His message: The more aware you are of what's going on, the more likely you will do the wrong thing.

Mr. Miller, president of Legg Mason Fund Adviser, manages two funds, Special Investment Trust Inc. and Value Trust Inc.

The first acquires stock of small companies like Circus Circus Enterprises Inc., Mirage Resorts Inc. and Playtex Products Inc.

Value Trust invests in big firms like Humana Inc., RJR Nabisco Holdings Corp. and Citicorp.

What differentiates those funds from others is that their stocks are found on the bargain shelf because most of the companies have problems, and others are simply undervalued.

When Mr. Miller finds a business that has hit bottom, he scoops it up and holds it, until the stock rises in value. It's the same strategy that made Warren Buffett the world's second-richest man.

Value Trust has averaged a 14.45 percent return from 1988 through '93, while Special Investment has averaged 21 percent.

But the strategy also has risks.

Not all companies resolve their problems, and some tend to perform better when the economy is growing.

Last year, Special Investment was flattened, when casino and banking stocks plunged and the Mexican government devalued the peso. The value of the fund dived 13 percent.

"Through chances various, through all vicissitudes, we make our way," Mr. Miller noted, quoting Shakespeare.

Mr. Miller can be direct, however, when the right nerve is touched. And nothing does that more than Monday morning quarterbacking: "As with the Crash in 1987, the press has now found that everyone anticipated or predicted the devaluation, except those who were managing money," he wrote after Mexico's economy fell into crisis.

It's not that Mr. Miller takes failure casually. When Special fizzled last year, the 45-year-old funds manager recalled his feelings.

"You just get this stunned, sick feeling," he said. "This is a serious enterprise -- it is college educations and people's retirements."

You might think that Mr. Miller would have second-guessed his strategy after taking such a beating with Special Investment, but that never crossed his mind. He compared himself to a professional baseball player who was going through a slump -- the more you press, the worse you play.

"You don't do anything different. You have to have the confidence and conviction and to understand you are going through one of those inevitable periods that things aren't going well."

Investors haven't been fazed by Special Investment's down year. The fund's assets have increased nearly 21 percent in the first eight months of the year and the value of the stocks is up 22.70 percent. Value Trust's assets have grown to $1.3 billion, up about 14 percent, and the return on the portfolio has been 34.56 percent.

He jokes about the Voodoo doll perched on his computer, saying it might explain the recent success of the funds. The doll was a gift this year from an associate. She told him, " 'This will get the fund moving again,' And it did. You have to take your luck when you can find it. We have Buddhas and trolls."

Mr. Miller became hooked on stocks when he was 10 years old. One day he asked his father about all those numbers he was reading in the business section of the newspaper.

"Those are stocks," his father said.

"What does this mean, up one quarter?" young Miller asked.

His father explained that it meant the stock rose 25 cents. But he also cautioned that the price could have fallen, too. He asked his father what he would have to do to make the stock rise.

"Nothing," his dad replied.

"I said, that is the business I want to be in, you don't have to do any work."

"I had a revelation at 10 years old," Mr. Miller recalled.

Mr. Miller is hardly a slacker.

He completed all but his dissertation for a doctorate in philosophy at Johns Hopkins University. His corner office on the 21st floor of the Legg Mason Tower is crammed with stacks of newspapers and reports. He reads everything from mainstream business publications, to the classics, to economic studies published by a think-tank called the Santa Fe Institute.

"You really have to cast a wide net in this business," he said.

He's so consumed by the business that when he walks past a sporting goods store or a grocery store his immediate reflex is look to see whether Nikes are moving faster than Reeboks, or whether Pepsi has more shelf space than Coke.

There's another reason he's so absorbed in his work. His life savings are tied up in his funds. How much money does he have salted away?

"It's a lot," he said. "It's all of my retirement. If I manage it poorly, I'm going right over a cliff with it."

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