Bill Miller is a hedge fund manager who left his post as Legg Mason’s Chairman and Chief Investment Officer to start his own fund called Miller Value Partners. In 2018 his fund lost more than 30%, but he made up for those losses in an epic way in 2019, according to CNBC.
Miller said in a letter addressed to investors that all stocks sold off sharply towards the end of 2018 amid global economic concerns and rising tensions with China. But he made no changes to his portfolio at that time which proved to be a prudent move as his fund returned 119.5% in 2019, net of fees.
According to Bloomberg, Miller’s top-performing stocks in 2019 were home security provider ADT, biopharmaceutical company Flexion Therapeutics and generic drugmaker Teva Pharmaceuticals, among others.
Beaten Up Picks
ADT, Flexion, and Teva all share a similar trait: they were poor performers over the past few years. However, Miller’s particular area of expertise focuses specifically on buying beaten-up stocks which he believes have become oversold and look attractive, Bloomberg noted.
Miller explained this philosophy in a 2006 letter to investors when he wrote: “any stock can be a value stock if it trades at a discount to its intrinsic value.” This also suggests stocks that look to be expensive are in fact cheap.
For example, his fund holds a position in Amazon whose stock briefly traded north of $2,000 per share. Also, he invested in RH (formerly known as Restoration Hardware), despite the home goods retailer’s stock increasing in value nearly 10-fold increase since 2017.
His unique investment philosophy earned him the title of being the only active manager to outperform the market each and every year from 1991 to 2005.
What’s Next? ‘Nothing’
Miller continued in his letter to investors that the final months of 2019 was particularly exciting because he got to do his favorite activity in stock picking: “nothing.” He wrote that his fund added no new names and didn’t sell anything.
“This doesn’t happen as often as it probably should,” he wrote.
Looking forward to 2020, his strategy of doing “nothing” should pay off as stocks are likely to continue move in a “straight line higher.” He believes the bull market will carry on and won’t be derailed by minor bumps in the road.
How bullish can he get? His final words speak for themselves:
“Setbacks and corrections should be expected, but unless something causes the economy to tip into recession and earnings and cash flows to decline, which I do not expect even if the geopolitical situation gets grimmer, then the path of least resistance for stocks remains as has been for a decade: higher.”