Beruflich Dokumente
Kultur Dokumente
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.
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.
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
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
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