Bill Miller watchers take stock

Can Legg's investment star beat the S&P 500 for the 15th year in a row?


From a ruddy-brown leather chair on stage, Legg Mason Inc.'s star money manager Bill Miller took questions from the audience at a recent investment conference in Baltimore. The talk veered from his views on the pace of innovation in technology to books he's reading to his thoughts on the federal deficit.

One businessman asked Miller to identify a few things that he believed to be true but now knows to be false. No one, it seemed, would have questioned that what Miller says is true now is indeed the truth.

Miller has attained exalted status in the investment world because he is the only mutual fund manager to have posted better returns than the Standard & Poor's 500 stock index for 14 consecutive years. No one else has come close.

In an industry that advertises its stock-picking prowess, few fund managers beat the market on such a regular basis.

Miller is going for 15 years, and this year promises to be a squeaker. Miller's Value Trust fund had a return of 4.5 percent for the year as of yesterday, barely besting the S&P's 4.2 percent return, according to Lipper Inc. Earlier in the week, Miller was behind.

If history is a guide, six weeks is plenty of time for Miller to pull further ahead. And if he doesn't retain the lead, a loss isn't likely to dethrone him from his leather-chair guru status. But for those in the Wall Street know, the race is on.

"Is he going to make it or not? Who knows," said Jeffrey W. Arricale, an analyst at T. Rowe Price Group, Baltimore's other mutual fund powerhouse. "As neighbors, we're all pulling for him. There's a lot of respect for what he's done, and there's a lot of attention on it."

The Miller watch has become a perennial distraction in the financial world, inspiring water-cooler discussions and "if-I-were-a-betting-man" predictions to add to the rituals of holiday shopping and merrymaking.

There have been close calls before, with Miller riding the wave of historically good fortunes in the fourth quarter after getting knocked down by the doldrums of the third quarter. The stock market almost predictably has a low before a year-end high.

For those reasons and many others, not many people are betting against Miller this year, said Jeff Tjornehoj, a research analyst at Lipper. Money magazine puts the odds that Miller's streak is just luck at less than 1 in 372,000. If Miller adds another win this year, those odds rise to 1 in 931,000, according to the publication.

"Streaks eventually come to an end, but taking the other side has been a losing proposition for too many years now," Tjornehoj said. "It seems like it's going to be another year that he's going to be able to notch a win."

Prospects for Miller's streak appeared bleak a month ago. At the market close on Oct. 20, Miller was down 4 percent for the year while the S&P had declined 1.4 percent. Then, one minute after closing, Google Inc. announced a sevenfold increase in its third-quarter earnings. The next day, the Internet company's stock started gaining and has climbed about $100 a share since then, or 33 percent.

Miller's Value Trust fund happens to hold 2.1 million shares of Google, according to its latest disclosure. That translates into a cool $210 million gain for his shareholders.

Miller's fund also holds JPMorgan Chase & Co., one of the nation's largest banking companies. Last month, the company reported that its third-quarter profit rose nearly 80 percent. Its stock has increased 12 percent since then, adding $80 million in gains to Miller's portfolio.

A few days before Google and JPMorgan stocks took off, Miller had issued his quarterly commentary.

"I normally don't have a view about the near-term direction of the stock market," he wrote, explaining that in the short run, market moves can be random. But, then he wrote, "I think the market is going up."

The leading candidates for a rally, in his estimation, are financial and technology companies.

Also among Miller's top holdings are Sprint Nextel Corp., UnitedHealth Group Inc., Tyco International Ltd., Inc. and Sears Holding Corp.

Notably absent are oil stocks, which have had a banner year as rising crude prices translated into record profits. Miller has said the oil industry faces too many headwinds, including environmental and political issues.

To explain the draw that Miller holds over fund junkies and other investors, Christopher J. Traulsen of Morningstar Inc., a research company, points out that every discipline has its standard bearers, such as General Electric's Jack Welsh and Microsoft's Bill Gates among chief executive officers or Michael Jordan among athletes.

And people are wondering, as they do with any hero, when -- and if -- Miller will falter.

"In November, if he's behind, I start getting a lot of phone calls from people asking: `Is this going to be the year it all comes crashing down?' " Traulsen said.

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