Bill Miller: Why Now Is a Great Time to Buy Value Stocks

The pandemic is one of the best stock-buying opportunities of all time. So says venerated value investor Bill Miller. And he oughta know.

Miller, when he headed Legg Mason Value Trust, beat the S&P 500 for 15 years in a row, a streak that ended in 2005. Today, however, out on his own, his flagship Miller Opportunity fund has had a mixed record.

The famous veteran investor, who retains a loyal following, opined in a letter to investors that he believes right now is one of the “great stock market buying opportunities” of his lifetime. Hey, the guy even bought shredded Boeing shares recently.

Miller said the fund was looking for good stocks that were cheap and overlooked in the market at present. Namely, “those names were also the worst performers when recession fears were high.”

Miller pinpointed four previous junctures when beaten-down stocks have been similarly alluring and proved to be wonderfully lucrative once things improved: In 1973-1974, as inflation was roaring and the Watergate scandal rocked Washington; in 1982 amid Mexico’s debt default; in 1987, in the aftermath of the October 1987 market crash; and in the 2008-09 global financial crisis.

“If you missed the other four great buying opportunities, the fifth one is now front and center,” Miller contended.

Following his 15-year streak, Miller’s showing has been erratic. He took a pasting during the 2008-09 financial crisis because he believed in maintaining his large position in financial stocks, which were tanking; he figured, wrongly, that their slide was temporary.

In his letter, he had no apologies for his chief fund’s up and down performance lately. This year, Miller Opportunity is down 35% and the S&P 500 is off 13.4%. But last year, he clocked a 33.9% gain, besting the benchmark index by 2.6 percentage points.

His top fund’s spotty record, he wrote, was owing to its holdings in volatile stocks. Going into 2020, he said he felt the risk environment was low, and then came the coronavirus scourge.

“We got that exogenous event in the form of a global pandemic that took stocks from all-time highs to a bear market decline of over 30% in the shortest time in history,” Miller said. “As is typical in these sorts of egregious declines, we are down a lot more than the market.”

In his defense, he pointed to John Maynard Keynes, the great economist who also was a celebrated investment manager. When money he was running went south during the 1937 stock rout and his board urged him to sell, Keynes responded, as quoted by Miller: It is “the duty of every serious investor to suffer grievous losses with great equanimity.”

Miller is no longer strictly a value guy. He and co-manager Samantha McLemore “will go wherever they feel negative investor sentiment along with positive fundamentals has created opportunity,” wrote Morningstar analyst Kevin McDevitt. “This can take them anywhere on the value-growth spectrum.” At the moment, research firm Morningstar gives the fund just a single star.

The star manager has taken significant helpings of dominant growth players such as Amazon, but also has gone big on the likes of Boeing (2.6% of his portfolio), which has had the hell kicked out of it. Due to the controversy over its crash-prone 737 MAX last year and its virus-slammed prospects this year, the aerospace giant has tumbled 60% in 12 months. He began amassing his Boeing position in March.

”I think, though, that a portfolio comprised of all ‘quality’ names, names that have been among the best performers in this dramatic decline,” Miller wrote, “will almost certainly be a portfolio that underperforms the market as the economy and the market recover.”