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If you start a question of “Who is the number 1 fund manager in this world? “, the proper answer that many American will say is “Bill Miller”. He is Chairman and Chief Investment Officer of Legg Mason Value Trust. His fund’s investment record during 1990- 2005 outperforms the S&P 500 index for 15 years consecutively. But in 2006 his return is at 5.85% vs. 15.75% of S&P 500. Due to poor performance of his major holding especially in Dot Com stock such as eBay, Amazon . What kind of Investor he is? What is his investment concept? Bill Miller claims that he is Value Investor. On his fund name, it is also named as “Value Trust”. But the conservative Value Investors may not agree with him . His fund owns Google, Microsoft, Amazon, eBay and many hi-tech firms. Which have very high PE ratio .Some might have almost 100x PE . Some still cannot make a profit yet. With that high price relative to earning, these stocks are overlooked by most “so-called” Value Investors. He also own stocks that is facing the hard time. Such as CitiGroup which has large loss recently due to subprime circumstance in US last year. Bill says he is 100% Value Investor .But what he see and define value in different from others Bill Miller says that most of hi-tech firm look expensive because investors judge them from the past . But he look forward into the future .The thing he does is comparing the share price with its future cash flow. Most of the leading hi-tech firm is likely to make a lot of cash flow in the future without further capital .He also claims that this is the core concept of Value Investment. By looking forward to the future and predict the “Intrinsic Value” of firm. Bill use Microsoft (MSFT) and Wal-Mart(WMT) as an examples . This two stocks has never been at cheap price . They always trade with the high PE ratio (never below 15-20x) . From the conservative ones, they might say this stock is too expensive to buy. But they are two greatest firms nowadays. And they yield shareholder more than 10-20 fold during the last 10-20 years. If these two stocks were overvalued, they could not make this impressive return for the shareholders. Bill’s conclusion is not to look in the share at only the financial multiple ratio. The lower PE ratio does not tell you that this stock is cheaper than another. Bill says low PE ratio stocks mostly are not real bargain. They loss their position in their industry or their industry is in the sunset. Or they are cyclical stock which cannot sustain its bottom line in financial statement. What investors have to focus is the “Future” not the “Past” which is reflect on the financial ratios. His ideal investment will be the firm that are the leader in its industry, able to yield higher return compare to invested capital than average. And it is in the growing stage. Whatever other talks about Bill Miller. One obvious thing is that his return has been in the superb level for such a long time. That is the best proof of this investment concept. Lately on the news, his fund owns Yahoo (YHOO) 80 million shares, which make the Legg Mason Value Trust be the company’s second-largest shareholder .With Microsoft’s surprise $31 bid for Yahoo, which came at a hefty 60 percent premium to Yahoo’s stock price at the time. This also the proof success of Bill Miller’s investment again.
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