Legg's Miller nears end of record streak

"The Streak" is all but over.

Barring a holiday miracle, money manager Bill Miller's unmatched record of beating the benchmark Standard & Poor's 500 stock index will end today after 15 consecutive years.


Miller's Value Trust mutual fund at Baltimore-based Legg Mason Inc. this year has returned 6.4 percent through yesterday, far behind the S&P;'s 16.4 percent gain - too far behind, statistically speaking. Because today marks the last stock trading session of 2006, analysts say Miller's chances of making up the difference in the 6 1/2 hours from opening bell to closing are slim to none.

For those in the investing world, especially in Baltimore's financial district, watching Miller's record is something of a spectator sport. It has been likened to Joe DiMaggio's hitting streak in the 1940s and to Cal Ripken Jr. playing the most consecutive major league baseball games. It is regarded as a feat of skill and stamina.


"He's the guy who beat the S&P; for 15 years, and he's the only one who could say that," said Jeff Tjornehoj, a research analyst at Lipper Inc., a mutual fund tracking firm. "It proves that there are talented managers out there who can beat the market."

Miller is known for investing in out-of-favor companies and holding them for years, waiting for the market to recognize what he thinks is the intrinsic value of the stock. Michael Mauboussin, who works closely with him as chief investment strategist at Legg Mason Capital Management, said Miller remains confident in his picks.

The streak has been Miller's claim to fame. It made him one of the most respected stock pickers of his time, a media star and the subject of a book by author Janet Lowe, who has penned volumes on Warren Buffett, Bill Gates and Oprah Winfrey. The streak also burnished the reputation of Legg Mason.

So what does Miller do now?

Well, start all over again. Analysts say that one down year is not likely to topple Miller from his vaunted status, much less scare investors away from Legg Mason.

Miller, who declined to be interviewed, has said that stocks in the Value Trust portfolio are due for potentially big gains in 2007. In his latest published commentary on the market, he wrote, "Count me somewhere between bullish and very bullish."

Investors pulled nearly $240 million from the $20 billion Value Trust in eight months through October, according to Financial Research Corp. But that figure turns to a net inflow of $288 million when the first two months of the year are counted. Legg Mason officials also say that institutional investors continue to put money in Miller's shop.

Nonetheless, speculation about Miller's future has bounced from Wall Street to the Inner Harbor.


Legg Chairman Raymond A. "Chip" Mason was asked about it recently on CNBC, the financial news network. And the tongues of sports fans have been wagging over Miller's interest in buying the Orioles with Ripken as a possible partner, raising the prospect of the city's two streak-holders uniting to bring the team back to glory. (For the record, current owner Peter G. Angelos says the team is not for sale.)

Mauboussin said Miller "has no plans to do anything besides what he's doing now."

"Our objective is to deliver superior results for shareholders; no one is pleased that may not happen this year," Mauboussin said. "That said, we also understand that quality outcomes are the result of a really good investment process, so we spend our time making that process as robust as possible."

In his book, More Than You Know: Finding Financial Wisdom in Unconventional Places, Mauboussin dedicates part of a chapter titled "The Hot Hand in Investing" to Miller's streak. He walks through the math to calculate the probability of beating the S&P; during the past 15 years, including 1997 when only 8 percent of funds bested the index. The odds: 1-in-2.3 million.

To the question of whether Miller was lucky, Mauboussin concedes that luck plays a role but then quotes biologist and popular science writer Stephen J. Gould, who said that long streaks are "extraordinary luck imposed upon great skill."

Miller has come agonizingly close to falling behind the S&P; in years past, often staging fourth-quarter comebacks. So this year stands out for being so far off the mark. According to Morningstar Inc., another fund-tracking firm, 98 percent of Miller's peers, meaning fund managers who focus on large company stocks, are doing better than him.


One bet that didn't pay off this year was on Internet stocks eBay Inc., Yahoo Inc. and Inc., each of which has posted double-digit declines. Those stocks together accounted for almost 10 percent of the Value Trust portfolio.

The fund also faltered because of holdings in homebuilder stocks, Centex Corp., Pulte Homes Inc. and Ryland Group Inc., which were down amid concerns that home sales are slowing. And investments in the phone company Sprint Nextel Corp. and health insurer UnitedHealth Group Inc. didn't pay off this year.

Christine Benz, director of fund analysis at Morningstar, said investors might consider Miller's fund a bargain buy now that several of his holdings are down, though she cautioned that investors should be prepared for volatility in performance. In that same vein, Benz said she wouldn't be surprised if Miller took this opportunity to increase his holdings in some of the fund's losing stocks.

"To Miller's credit, he doesn't worry too much about short-term periods of underperformance," Benz said. "He sees it as his favorite companies being on sale."

As for those who will miss the Miller vs. market ritual, there's still a slim chance that his other mutual fund, the Opportunity Trust, could continue its streak. So far, it has beaten the S&P; for six consecutive years.

It's just 2 percentage points behind going into today's final stretch.