'We made some mistakes,' Miller says of streak's end

He got beat - badly.

But in breaking his silence yesterday about the end of his vaunted 15-year streak of outperforming the market, Legg Mason money manager Bill Miller was philosophical and, at times, contrite.


In a lengthy essay that reveals much about his sometimes contrarian investing philosophy, Miller walked investors through the steps that led his Value Trust mutual fund to a 5.9 percent return in a year when the benchmark S&P; 500 gained 15.8 percent, including reinvested dividends.

Miller, who manages the fund at Baltimore-based Legg Mason Inc., blamed the results on a series of miscalculations anchored in the same investing strategy that had worked so well for so long.


"A common question I've gotten is whether I am in some sense relieved that it is over," Miller wrote in a letter to his shareholders.

" ... We are paid to do a job and we didn't do it this year, which is what the end of the streak means, and I am not happy or relieved about that," Miller said in his letter released yesterday.

"The Streak," as it was popularly known in Baltimore's financial district, helped draw investors to Legg funds and drew comparisons to the major-league baseball records set by Joe DiMaggio's 56-game hitting streak in 1941 and Cal Ripken Jr. playing in 2,632 consecutive games.

Miller said the probabilities of beating the market all those years is 1 in 2.3 million, suggesting the streak was more than blind luck. It continued for so many years in part, he concludes, because the fund's managers were value-driven, picking stocks that the rest of the market had discounted for mostly psychological reasons.

It was also helped, he said, by having invested in technology stocks in the 1990s at a time when they were still cheap.

But if luck played a role in the streak's record run, it also played a role in its demise, he said.

"The streak ended because all streaks eventually end, and because we made some mistakes, such as not being invested in energy in 2003 when it was cheap, in being too concentrated when concentration added no value, and due to some bad luck."

Mutual fund analysts predicted Miller's career would continue to thrive despite last year's returns. And some said his record before 2006 proves he can beat the S&P; by significant margins.


"I think the streak is a lot less meaningful than his long-term record," said Greg Carlson, who follows the fund for Morningstar Inc. "It needs to be put in perspective."

Others said the note to shareholders was something Miller needed to do.

"I'd like to say that [the letter] wasn't necessary," said Jeff Tjornehoj, a research analyst at Lipper Inc., a mutual fund tracking firm.

"But given his outstanding popularity and the coverage that his streak had received through the years," Tjornehoj added, "it was probably a very good idea to at least give his side of the story."