INSIGHTS INTO THE MINDSET OF SUPER TRADERS – Part 19
“Just as picking up a five iron does not make you Tiger Woods, opening a brokerage account and sitting in front of a computer screen does not make you Peter Lynch or Warren Buffett. That is something you must work for, and it takes time and practice. What is important is that you learn how to practice correctly.” – Mark Minervini
Name: Bill Miller
Year of birth: 1950
Nationality: American
Occupation: Portfolios manager
Career
Bill Miller went to Washington and Lee University, graduating in 1972 (BSc Economics). Following that, he worked as a military intelligence officer, also pursuing graduate studies in the Ph.D. program at the Johns Hopkins University.
He was a treasurer of the J.E. Baker Company, a major manufacturer of products for the steel and cement industries. In 1981, he started working at Legg Mason. He was designated a CFA in 1986.
Bill’s fund increased from $750,000,000 in 1990 to more than $20,000,000,000 in 2006.
In 2002, Janet Lowe wrote a book about him, titled “The Man Who Beats The S&P: Investing With Bill Miller.”
Bill performed so well that he and his team got numerous praises for their achievements and uniqueness of trading approaches. According to Wikipedia, he was ranked among the top 30 most influential people in investing when he was named a member of the “Power 30” by SmartMoney. He was also named by Money magazine as “the Greatest Money Manager of the 1990’s” and named Morningstar’s 1998 “Domestic Equity Manager of the Year.” In 1999, he was selected as the “Fund Manager of the Decade” by Morningstar.com. Also in 1999, Barron’s named him to its All-Century Investment Team and BusinessWeek called him one of the “Heroes of Value Investing.”
Bill is currently the portfolio manager of the Legg Mason Opportunity Trust (Mutual fund: LMOPX) mutual funds, run by Miller through Legg Mason subsidiary LMM. Formerly he’s the chairman and chief investment officer at of Legg Mason Capital Management, now a part of ClearBridge.
Insights
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It’s quite possible to outperform the markets for a long period of time. Bill Miller beat the S&P 500 index for 15 consecutive years (1991 - 2005). This is one of the longest winning streaks of a trading career. Constantly making market beating returns is considered to be very unlikely according to the efficient market hypothesis, but it’s possible. So in your career, you can defy the conventional theory and rise beyond obstacles.
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Information simply shows what’s happened while value shows what may happen. It’ll be in your best interest to think about the Big Picture.
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Bill says certainty belongs to mathematics, not to markets, and anyone who awaits clarity, visibility, or the diminution of uncertainty pays a high price for a chimera… It’s the nature of financial markets to be subject to sharp price fluctuations, to be buffeted by events, and often to be emotionally trying. Successful investing involves the disciplined and patient execution of a long-term strategy, especially when it’s emotionally difficult. That’s usually the time the opportunities are the greatest.
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Most money managers take positions as they swing to their opposites. Those swings can have wide arcs, and unsustainable trends can sometimes persist beyond the ability of one to endure. This explains why speculators sell their positions in over-extended bear markets, for they can’t continue enduring the pain of losing. When bull markets become over-extended, speculators are glad to go in fully, thinking that the bullish trend would continue in spite of the fact that things look overbought.
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Flying in the face of conventional trading wisdom, Bill explains what value investing really means to him: “We are value investors because we are persuaded of the logic of buying shares of businesses when others want to sell them, and we understand that lower prices today mean higher future rates of return, and high prices today mean lower future rates of return.”
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The real secrets behind Bill’s super performance (which is very difficult to copy) is that he spent many years studying independent super achievers, and along the way he’s become one of the super achievers.
Conclusion: Louise Bedford of Tradinggame.com.au once said that you’d better start seeking out people who are making a lot more money than you are. You will naturally rise to the occasion and start moving forward. Your thinking will change. Your habits will change. Traders who make a million plus per year think differently and act differently to those making 100K per year. The fact is, if your mates are telling you 100K per year is fantastic, but your goal is to get to 500K a year… then you’d better find another group. There are those who imagine the future; there are those who create the future. Permanent victory is easier when the mission is clear. Here, we’re dedicated to making our trading career a success story.
This piece is ended with quotes from Bill:
“The market does reflect the available information, as the professors tell us. But just as the funhouse mirrors don’t always accurately reflect your weight, the markets don’t always accurately reflect that information. Usually they are too pessimistic when it’s bad, and too optimistic when it’s good.”
“What we try to do is take advantage of errors others make, usually because they are too short-term oriented, or they react to dramatic events, or they overestimate the impact of events, and so on.”
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