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Will Bill Miller's Stock Picks Make You Rich?

Recently, the Web site Seeking Alpha interviewed the legendary fund manager Bill Miller, in which Miller provided his list of the 15 best long-term stock picks -- his 15 largest holdings.

The question is: Why should investors care what stocks Miller recommends? Well, his firm is a subsidiary of the 11th largest asset manager in the world with $672 billion under management as of December 31, 2010. And Miller was named by Money magazine as "The Greatest Money Manager of the 1990s." Between 1990 and 2005, Miller beat the S&P 500 Index each and every year.

Unfortunately, the performance of the Legg Mason Capital Management Value Trust (LMVTX) since then has made him more infamous than famous with investors. Consider its performance compared to the S&P 500.


Overall, LMVTX underperformed the S&P 500 by 10.1 percent a year for this five-year period. The underperformance was 3.3 percent a year if you go back 10 years. It would be hard to replicate that performance if one was trying to do so, which is why Morningstar now gives it a one-star rating. Care to guess what rating the fund carried in 2005?

To be fair to Miller, we should really compare his performance to a value index. The MSCI US Prime Market Value Index would seem to be a better benchmark for a value fund. Here, the relative performance record is a bit better for the five-year period from 2006 through 2010, as the fund only underperformed the index by 9.2 percent. Over the 10 years ending in 2010, LMVTX underperformed the index by 5.2 percent.

Given a 10-year record of underperformance by such large amounts, one has to wonder why people care about Miller's picks. One also has to wonder why the fund still has about $4 billion of assets under management. On the other hand, we know why Miller is telling you about his picks: He already owns them and needs you to buy them so he can sell them at higher prices.

And finally, keep the performance of LMVTX in mind the next time someone tells you about the great long-term record of some fund manager. As the evidence shows, you're far more likely to end up with the next Bill Miller than the next Warren Buffett. And that's what makes passive investing the winner's game.

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Bill Miller: Regaining His Touch or Getting Lucky Again? Book Review: John Bogle's Don't Count on It A Motley Fool and His Money Are Soon Parted Why Keeping Your Investments Local Is a Bad Strategy Quest for Alpha: 10 Rules for Being a Successful Investor
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