Bill Miller Essay

Decent Essays
1. How well has Value Trust performed as of the date of the case?
As of 2005, Value Trust had outperformed its benchmark index, the S&P 500, for 14 years consecutively. Given that the next longest period of sustained performance was only half as long, 14 consecutive years of excellent performance set a record as the longest streak of success for any manager in the mutual-fund industry. The average annual total return for the past 15 years was 14.6%, which was higher than the S&P’s 500 by 3.67%. Value Trust had 36 holdings, 10 of which accounted for nearly 50% of the fund’s assets. Morningstar gave Value Trust a five-star rating.

2. What might explain the fund’s performance?
Some observers attributed the success in fund’s
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Miller is an adherent of fundamental analysis, an approach to equity investing he had gleaned from a number of sources. Miller’s approach was research-intensive and highly concentrated. Nearly 50% of Value Trust’s assets were invested in just 10 large-capitalization companies. While most of Miller’s investments were value stocks, he was not averse to taking large positions in the stocks of growth companies. Overall, Miller’s style was eclectic and difficult to distill.
Several key elements of Miller’s contrarian strategy included: 1) buy low-price, high intrinsic-value stocks; 2) take heart in pessimistic markets; 3) remember that the lowest average cost wins; 4) be wary of valuation illusions; 5) take the long view; 6) look for cyclical and secular underpricing; 7) buy low-expectation stocks; 8) take risks.

4. What is the efficient-markets hypothesis? What does it imply about the role of portfolio managers?
The Efficient-Market Hypothesis (EMH) states that it is impossible to beat the market because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information.
According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. Thus, portfolio managers should find it impossible to outperform the overall
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