An evaluation on Bill Miller recent,

past performance and comments on

efficient market hypothesis.

Case Study 4
Bill Miller investment strategy
and theory of efficient
market.

Xun Yang Ng

N8925615

Table of contents
Introduction ...................................................................................................................................................... 2
Past and current performance of Value Trust................................................................................................... 2
Investment Strategy of Bill Miller...................................................................................................................... 3
Efficient market hypothesis .............................................................................................................................. 3
Miller comments on Value Trust poor performance ....................................................................................... 4
Change of Chief Investment Officer (CIO) in 2012. ........................................................................................... 4
Conclusion ......................................................................................................................................................... 5
References......................................................................................................................................................... 6
Appendix ........................................................................................................................................................... 9
Appendix A .................................................................................................................................................... 9
Appendix B .................................................................................................................................................... 9
Appendix C .................................................................................................................................................. 10
Appendix D .................................................................................................................................................. 10
Appendix E................................................................................................................................................... 11
Appendix F ................................................................................................................................................... 11

Introduction
Bill Miller, the past manager of Value Trust, has beaten the market for 15 years consecutively.
Having an average of annual total return of 14.6%, surpassed S&P 500 by 3.67 percent per year.
Hence, this report will evaluate whether Miller is just plain lucky or he actually has skills in beating
the market. Besides, efficiency of market is also examined.

Past and current performance of Value Trust

Fama-French Model (Appendix E and F) will be used, as they are more relevant because this model
adjusts for the outperformance tendency, which is a better tool for evaluating manager
performance. According to current performance (Appendix E), it has shown that the model is having
statistically insignificant in terms of p-value and t-statistics. Having a t-statistics of -0.40 has shown
that this model is not significant, as it is less than 1.96. Getting a result of negative alpha also implies
that ClearBridge Value Trust has underperformed the market for the time being. A low alpha of 0.008168 is not convincing enough that Miller nor David has skill. Having a large p-value of 69%,
meaning 69 of out 100 test will give us a false negative, only less than 31 out of 100times we will get
a negative alpha. As conclusion, results are not consistent and not convincing enough to say that
neither Miller nor David has skill.

Based on the past performance (Appendix F), it has shown that ClearBridge Value Trust has a
positive alpha of 0.22, implying that it has outperformed the market by 22%. Having a high alpha
indicated that the model is economically significant. Moreover, having a p-value of 0.0000001649,
which is awfully small and t-stat of 5.25 (more than 2 times of 1.96), have justified that this model is
statistically significant and consistent. Based on this past performance, it is proved that Miller has
skill in beating the market for the past and not just plain luck.

Investment Strategy of Bill Miller

Miller has been described as a contrarian, value-oriented investor whose strategy focused on buying
cheap stocks and holding them for the long term, subscribing to the same value school as Ben
Graham and Warren Buffett (Ben Hobson, 2012). Some analysts have contended that his
investments also owed a great deal to growth strategies. Moreover, Miller generally invests in
companies whose shares are selling below what he thinks is their true value (Eileen Ambrose,
2013).Mr Miller acts in his element, as the shares continued to fall, he argued that investors were
overreacting and kept buying (Tom Lauricella, 2008). Miller suggests taking risky assets will continue
to perform well relative to safer assets (Glyndon Park, 2014). While for Buffett, risk considerations
always outweigh reward prospects and in fact, he views the best investments as those which offer
great reward with little actual risk (Davy. 2009). Bill Miller ignored one of the advices of Warren
Buffet, which is investing in your circle of competence. Bill Miller has invested in companies such as
eBay and DirecTV which operate in fast-changing arenas (Selena Maranjian, 2010) even though he
does not know what will happen on the future.

Efficient market hypothesis

Under efficient market hypothesis, it is virtually impossible to consistently predict asset prices in
order to beat the market (Jodi Beggs, 2014). However, sometimes it takes time for stock prices to
respond to new information released to investment community (Jason Van Bergen, 2011). There are,
however, many examples of investors who have consistently beat the market. Warren Buffett's
investing style of discipline, patience and value has consistently outperformed the market for
decades (Richard Loth, 2009).
According to this case study, Bill Miller has outperformed the market for consecutively 15 years.
From the calculation that I have done in Appendix F, which is from year 2009 to 1999, I can conclude
that Miller has consistently outperformed the market. Hence, it can be said that the market during
the year should be partially efficient. It can also say that Bill Miller is considered super lucky to
outperform the market over 15 years. As when his streak ended at 2006 and only able outperformed
S&P market at 2009 (Ross Kerber, 2011).

Miller comments on Value Trust poor performance

Mr. Miller once quipped that the only time he would stop buying more when a stock's price fell was
"when we can no longer get a quote" and he was blindsided by the financial crisis. The more his
financial stocks went down, the more shares he bought (Jason Zweig, 2011), making Value Trust to
go underperformed.
Besides, it was obvious we should not have owned homebuilders, or retailers or banks, and that I
should have known better than to invest in such things, said by Miller. Due to Fed has increased the
interest rates, the housing prices has gone down making the Value Trust underperformed (Geraldine
Fabrikant, 2008).
Moreover, Miller focused on focused-fund strategy, which he only holds a relatively concentrated
portfolio, and the bad news has kept coming for some of his major. (Geraldine Fabrikant, 2008).
After Microsofts proposed buyout of Yahoo fell apart, Yahoos stock plunged 11.5 percent last week.
Legg Mason holds a 6.7 percent stake in Yahoo. A massive drop of Yahoos stock would have big
impact on Value Trust as it occupied a big portion of the portfolio.

Change of Chief Investment Officer (CIO) in 2012.

Value investor Bill Miller would step down as manager of the Legg Mason Capital Management
Value Trust fund (Joe Light, 2011). Sam Peter will become the new sole manager of Value Trust,
which Miller recognized him as a potential portfolio manager for Value Trust after his steady hand
during 2008 financial crisis (Chris Isidore, 2011). The fund has gone up 27.8 percent under new
manager Sam Peter in the past 12 months, compared with 20.6 percent for the S&P 500 index (
Eileen Ambrose, 2013), which has not seen in years. The reasons behind the change will be investors
now are more looking at exchange-traded funds, and less reliance on portfolio manager being a start
(Joe Light, 2011).

Moreover, todays markets are fundamentally different from the ones in which Miller built his
all-star track record. Todays market has been much more of a trading environment, rather than one
that could identify an important theme and take advantage of it over a period ( Diana B. Henriques,
2011).

Conclusion
A funds performance could be explained by finding the net asset value and then computing the
annual total return. Investing can be a game of luck, but researching investments can also help in
finding the right investments. It will definitely be difficult to sustain Millers historical performance,
but whoever takes his place in the future could have a good chance of sustaining it if they follow his
rules and use the strategy he put together. Portfolio managers play a huge role in the mutual fund
industry, they are the ones who put together an investment strategy and choose the investments.
However, this belief isnt always guaranteed to work, as the stock market is very unpredictable.

References
Baltimore Sun, (2011). Legg Mason's Bill Miller talks about the performance of his fund and
what he learned from 2008.
Retrieved from: http://articles.baltimoresun.com/2013-08-10/business/bs-bz-miller20130810_1_value-trust-legg-mason-opportunity-trust-bull-market
Beggs, J. (2014). Can You Beat the Stock Market? Find Out What One Theory Says. About.
Retrieved from: http://economics.about.com/od/Financial-Markets-Category/a/TheEfficient-Markets-Hypothesis.htm
Bergen, J. (2011). Efficient Market Hypothesis: Is The Stock Market Efficient?. Investopedia.
Retrieved from: http://www.investopedia.com/articles/basics/04/022004.asp
CNNMoney, (2014). Bill Miller to quit as Legg Mason fund manager.
Retrieved from at: http://money.cnn.com/2011/11/17/markets/bill_miller/
Enlightened-american.com, (2014). The Enlightened American Contrast In Approach: Bill
Miller vs. Warren Buffett.
Retrieved from: http://enlightened-american.com/2009/10/14/contrast-in-approach-billmiller-vs-warren-buffett
Hobson, B. (2014). Contrarian value: Bill Millers investment approach. Stockopedia.
Retrieved from: http://www.stockopedia.com/content/contrarian-value-bill-millersinvestment-approach-67419/
Investopedia, (2009). The Greatest Investors: Bill Miller | Investopedia.
Retrieved from: http://www.investopedia.com/university/greatest/billmiller.asp
Investopedia, (2009). The Greatest Investors: Warren Buffett | Investopedia.
Retrieved from http://www.investopedia.com/university/greatest/warrenbuffett.asp

Kadlec, D. and Kadlec, D. (2014). What We Can Learn from a Legendary Fund
Managers Retirement | TIME.com. TIME.com.
Retrieved from: http://business.time.com/2011/11/22/what-we-can-learn-from-alegendary-fund-managers-retirement/
Lauricella, T. (2014). The Stock Picker's Defeat. WSJ.
Retrieved from: http://online.wsj.com/articles/SB122886123425292617
Maranjian, S. (2014). Bill Miller vs. Warren Buffett (AES, C, DTV, GE, RIG, VZ). Fool.com.
Retrieved from: http://www.fool.com/investing/value/2010/11/22/bill-miller-vs-warrenbuffett.aspx
Park, G. (2014). Portfolio Greatness: Bill Miller's Advice On How To Make Money In This
Market. Seekingalpha.com.
Retrieved from: http://seekingalpha.com/article/2114283-portfolio-greatness-bill-millersadvice-on-how-to-make-money-in-this-market
Reuters, (2014). Analysis: Bill Miller's fall shows luck at play in investing.
Retrieved from: http://www.reuters.com/article/2011/11/18/us-leggmason-miller-luckidUSTRE7AH03G20111118
Braham, L. (2008). Focused Funds Can Offer Wild Rides or Safe Bets. Businessweek.com.
Retrieved from: http://www.businessweek.com/stories/2008-08-13/focused-funds-canoffer-wild-rides-or-safe-bets
Financial Times, (2014). Miller hands over Legg Mason Value Trust - FT.com.
Retrieved from: http://www.ft.com/cms/s/0/db6de9f0-112e-11e1-ad2200144feabdc0.html#axzz3HQ7d2UL7
Nytimes.com, (2014). A humbling period for Bill Miller of Legg Mason - The New York
Times.
Retrieved from:
http://www.nytimes.com/2008/05/11/business/worldbusiness/11iht11bill.12761614.html
?pagewanted=all&_r=0 HENRIQUES, D. (2014). Bill Miller to Change Role at Legg
7

Mason. Nytimes.com.
Retrieved from: http://www.nytimes.com/2011/11/18/business/star-manager-giving-uplegg-mason-fund.html
Nytimes.com, (2014). Humbler, After a Streak of Magic - New York Times.
Retrieved from:
http://www.nytimes.com/2008/05/11/business/11bill.html?pagewanted=all
Zweig, J. (2014). The Long Climb and Steep Descent of Legg Mason's Top Stock Picker.
WSJ. Retrieved from:
http://online.wsj.com/articles/SB10001424052970204517204577044570430299472

Appendix
Appendix A- ClearBridge Value Trust Class C recent performance 30th Sept 14- 30th Sept 09
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.978395982
R Square
0.957258698
Adjusted R Square
0.957224614
Standard Error 0.002317441
Observations
1256
ANOVA
df
Regression
Residual
Total

1
1254
1255

SS
MS
0.15083302 0.15083302
0.006734647 5.37053E-06
0.157567667

Coefficients
Standard Error
t Stat
Intercept - 0.000054649559 0.00006548570 -0.83452663
X Variable 1
1.079467849
0.00644125 167.5867014

F
Significance F
28085.3025
0

P-value
Lower 95%
Upper 95%
Lower 95.0% Upper 95.0%
40% -0.000183123 0.000073824051391 -0.00018 0.0000738241
0 1.066831034
1.092104664 1.066831
1.092104664

Appendix B- ClearBridge Value Trust Class C past performance 30th Dec 09- 30th Dec 99
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.93530049
R Square
0.874787006
Adjusted R Square0.87473718
Standard Error 0.005729782
Observations
2515
ANOVA
df
Regression
Residual
Total

Intercept
r 500

1
2513
2514

SS
MS
F
Significance F
0.576396927 0.576396927 17556.80204
0
0.082502809 3.28304E-05
0.658899735

Coefficients
Standard Error
t Stat
P-value
Lower 95%
0.000013373
0.000114253 0.117045305 0.906833505 -0.000210668
1.081463454
0.00816186 132.5020832
0 1.065458794

Upper 95%
Lower 95.0% Upper 95.0%
0.000237413 -0.00021
0.000237413
1.097468114 1.065459
1.097468114

Appendix C- ClearBridge Value Trust Class C recent performance 30th Sept 14- 30th Sept 09 included
risk free
SUMMARY OUTPUT
Regression Statistics
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.978451421
R Square
0.957367184
Adjusted R Square
0.957333187
Standard Error 0.002316495
Observations
1256
ANOVA
df
Regression
Residual
Total

1
1254
1255

SS
MS
0.151110589 0.151111
0.006729153 5.37E-06
0.157839741

Coefficients
Standard Error
t Stat
Intercept - 0.000040173576 0.00006540592 -0.61422
r 500- rf
1.079676626
0.00643395 167.8093

F
Significance F
28159.96134
0

P-value

Lower 95%
54% -0.00017
0 1.067054

Upper 95% Lower 95.0%Upper 95.0%

8.81435E-05 -0.00017 0.000088144
1.092299119 1.067054 1.092299119

Appendix D - ClearBridge Value Trust Class C past performance 30th Dec 09- 30th Dec 99 included
risk free
Summary Output
Multiple R
R Square
Adjusted R Square
Standard Error
Observations

0.947254256
0.897290626
0.897249754
0.005749949
2515

ANOVA
df
Regression
Residual
Total

Intercept
r500-rf

1
2513
2514

SS
MS
0.725844338 0.725844
0.083084584 3.31E-05
0.808928922

F
Significance F
21954.09478
0

Coefficients
Standard Error t Stat
P-value
Lower 95%
0.000713863
0.000138522 5.153421 0.0000002756580 0.000442
1.06480798
0.007186435 148.1691
0 1.050716

Upper 95% Lower 95.0%Upper 95.0%

0.000985492 0.000442 0.000985492
1.078899922 1.050716 1.078899922

10

Appendix E - ClearBridge Value Trust Class C recent performance 30th Sept 14- 30th Sept 09
included risk free, SMB and HML
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.979995041
R Square
0.96039028
Adjusted R Square
0.960295368
Standard Error
0.002234637
Observations
1256
ANOVA
df

SS
MS
0.151587753 0.050529251
0.006251988 4.9936E-06
0.157839741

F
Significance F
10118.80094
0

Coefficients
Standard Error
t Stat
- 0.000025524827
0.00006312 -0.40440597
1.04814622
0.007331411 142.966499
0.00054049
0.000138041 3.915424255
0.001506256
0.000159169 9.463257965

P-value
Lower 95%
69% -0.000149351
0 1.033763013
9.51104E-05 0.000269672
1.42513E-20 0.001193989

Regression
Residual
Total

Intercept
r 500- rf
SMB
HML

3
1252
1255

Upper 95%
9.83016E-05
1.062529427
0.000811308
0.001818524

Lower 95.0%
-0.000149351
1.033763013
0.000269672
0.001193989

Upper 95.0%
9.83016E-05
1.062529427
0.000811308
0.001818524

Appendix F ClearBridge Value Trust Class C past performance 30th Dec 09- 30th Dec 99 included
risk free, SMB and HML
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.953123842
R Square
0.908445058
Adjusted R Square
0.908335673
Standard Error
0.005430911
Observations
2515
ANOVA
df
Regression
Residual
Total

Intercept
r500-rf
SMB
HML

3
2511
2514

SS
MS
0.734867481 0.244955827
0.074061441 2.94948E-05
0.808928922

Coefficients
Standard Error
0.000686963
0.00013085
1.073122028
0.006805063
0.001887407
0.000169333
0.002344166
0.000151567

F
Significance F
8305.05154
0

t Stat
P-value
Lower 95%
5.249987516 0.0000001649
0.000430377
157.6946489
0 1.059777918
11.14614713
3.39123E-28 0.001555361
15.46619748
1.30475E-51 0.002046957

Upper 95%
0.000943549
1.086466139
0.002219454
0.002641375

Lower 95.0%
0.000430377
1.059777918
0.001555361
0.002046957

11

Upper 95.0%
0.000943549
1.086466139
0.002219454
0.002641375