While it hasn’t been easy being an equity investor, it has been far worse for investors in legendary manager Bill Miller’s Legg Mason Value Trust (LMVT, Canadian investors will be familiar with Mr. Miller through the CI Value Trust). After racking up a 15-year streak of beating the S&P 500 index, LMVT has trailed the index by 10% in 2006, 12% in 2007 and is 17% in the hole so far this year. Investments in Bear Stearns, Freddie Mac, Countrywide Financial have resulted in the fund losing one-third of its value this year alone.
Investors are responding in a predictable fashion — by selling the fund. A striking example is the Massachusetts state pension fund which fired Mr. Miller’s fund and four others for “inconsistent performance” and says that it has reached the conclusion that “active managers add no value over long periods of time”.
In his latest letter to shareholders, Bill Miller urges patience and notes:
The best time to open an account with us has always been when we’ve had dismal
performance, and the worst time has always been after a long run of excess returns. Yet we (and everyone else) get the most inflows and the most interest AFTER we’ve done well, and the most client terminations AFTER we’ve done poorly. It will always be so, because that is the way people behave.
Unfortunately, it is falling on deaf ears.
