Value Managers Rationalize – Bianco Research

MarketBeat (WSJ Blog) – My Name Is Bill M., And I’m a Value Manager
A second-quarter letter released this week by Legg Mason’s Bill Miller illuminates how value fund managers are commiserating this year about their terrible returns. The letter opens at an undisclosed location (confirmed to be Allen & Co.’s annual shindig in Sun Valley, Idaho), where an all-star cast of investors stand around lamenting about recent disastrous performance.
Legg Mason Capital – Bill Miller Commentary 2Q 2008
A point he [John Rogers of Ariel Capital] made that I have likewise noted to our team is that this is the only market I have seen where you could just read the headlines in the papers, react to them, and make an excess return. I have used the mantra to our analysts that if it’s in the papers, it’s in the price—which used to be correct. Indeed, it borders on cliché in the business that by the time something makes the cover of the major news or business publications, you can make money by doing the opposite. There is solid academic research to back this up. But in the past two years, you didn’t need to know anything except to sell what the headlines were negative about (anything related to real estate, the consumer, or finance) and buy anything that was going up and that everybody liked (energy, materials, industrials).
Blogging Stocks – After 34% drop in Value Trust, Bill Miller needs to go
Bill Miller, Legg Mason Value Trust’s manager, used to be a good investor but he’s outlived his usefulness in that role. Legg Mason has kept him on for too long and if it doesn’t give him the hook fast, he will sink the company. The problem? Miller’s success has gone to his head and he can’t adapt. This phenomenon is quite common. It’s called confirmation bias — the tendency of decision-makers to seek out information that reinforces their views of the world and to reject information that challenges those views. This is particularly common among those who have been successful. They think that they have figured out a winning formula and when it stops working, they blame everyone but themselves.
The Motley Fool (Blog) – Has Bill Miller Lost His Touch?
Sloppy scorecards aren’t the only things making Miller feel pedestrian these days. His words are also coming back to haunt him. As a large Yahoo! (Nasdaq: YHOO) shareholder, Miller was vocal about Microsoft’s offer to acquire the company for $31 a share. He suggested that Microsoft would have to raise its bid to win Yahoo!’s fancy. As one of Yahoo!’s largest shareowners — his fund owned 80 million shares at the time — we may never know whether his influence was one of the reasons why Yahoo! foolishly held out for more. All we know is that Microsoft tired of dangling its generous offer and walked away, slashing Miller’s stake in the process. In the end, Miller’s legacy is in his own hands. When I suggest that the game has passed him by — failing to beat the market over the past 10 years should be long enough to back up that assertion — it’s up to him to prove me, and more importantly his shareowners, wrong.

Comment From 2000 to 2002 growth managers fell in love with technology and were never able to see that the “game was over,” riding those stocks down. In 2007/2008 value managers fell in love with financials and are not able to see that the game is over. Bill Miller’s monthly points out a number of the names that are suffering.

Consider the next story a warning. Von Wagoner was the hottest manager going in 1999, up nearly 300%. Today he is resigning after positing the worst 10-year track record in the industry.

In 2005 Bill Miller was the hottest manager going after beating the S&P 500 for the 15th consecutive year. Today he has the worst 5-year track record in the industry. Is Miller on a different track or merely 5-years behind Von Wagoner? Time will tell.

[chart]

The Wall Street Journal – Van Wagoner to Step Down As Manager of Growth Fund
Specializing in the volatile world of small-growth stocks, many of them tech firms, Van Wagoner Emerging Growth has clocked an annualized 10.2% loss for the past 10 years. During that time, actively managed domestic stock funds were up an average 5.6%, according to fund tracker Morningstar Inc. For 2008, the Van Wagoner fund is down 28%, about twice as bad as the broad market’s fall.