Bill Miller: Why Now Is a Great Time to Buy Value Stocks

The pandemic is one of the best stock-buying opportunities of all time. So says venerated value investor Bill Miller. And he oughta know.

Miller, when he headed Legg Mason Value Trust, beat the S&P 500 for 15 years in a row, a streak that ended in 2005. Today, however, out on his own, his flagship Miller Opportunity fund has had a mixed record.

The famous veteran investor, who retains a loyal following, opined in a letter to investors that he believes right now is one of the “great stock market buying opportunities” of his lifetime. Hey, the guy even bought shredded Boeing shares recently.

Miller said the fund was looking for good stocks that were cheap and overlooked in the market at present. Namely, “those names were also the worst performers when recession fears were high.”

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Miller pinpointed four previous junctures when beaten-down stocks have been similarly alluring and proved to be wonderfully lucrative once things improved: In 1973-1974, as inflation was roaring and the Watergate scandal rocked Washington; in 1982 amid Mexico’s debt default; in 1987, in the aftermath of the October 1987 market crash; and in the 2008-09 global financial crisis.

“If you missed the other four great buying opportunities, the fifth one is now front and center,” Miller contended.

Following his 15-year streak, Miller’s showing has been erratic. He took a pasting during the 2008-09 financial crisis because he believed in maintaining his large position in financial stocks, which were tanking; he figured, wrongly, that their slide was temporary.

In his letter, he had no apologies for his chief fund’s up and down performance lately. This year, Miller Opportunity is down 35% and the S&P 500 is off 13.4%. But last year, he clocked a 33.9% gain, besting the benchmark index by 2.6 percentage points.

His top fund’s spotty record, he wrote, was owing to its holdings in volatile stocks. Going into 2020, he said he felt the risk environment was low, and then came the coronavirus scourge.

“We got that exogenous event in the form of a global pandemic that took stocks from all-time highs to a bear market decline of over 30% in the shortest time in history,” Miller said. “As is typical in these sorts of egregious declines, we are down a lot more than the market.”

In his defense, he pointed to John Maynard Keynes, the great economist who also was a celebrated investment manager. When money he was running went south during the 1937 stock rout and his board urged him to sell, Keynes responded, as quoted by Miller: It is “the duty of every serious investor to suffer grievous losses with great equanimity.”

Miller is no longer strictly a value guy. He and co-manager Samantha McLemore “will go wherever they feel negative investor sentiment along with positive fundamentals has created opportunity,” wrote Morningstar analyst Kevin McDevitt. “This can take them anywhere on the value-growth spectrum.” At the moment, research firm Morningstar gives the fund just a single star.

The star manager has taken significant helpings of dominant growth players such as Amazon, but also has gone big on the likes of Boeing (2.6% of his portfolio), which has had the hell kicked out of it. Due to the controversy over its crash-prone 737 MAX last year and its virus-slammed prospects this year, the aerospace giant has tumbled 60% in 12 months. He began amassing his Boeing position in March.

”I think, though, that a portfolio comprised of all ‘quality’ names, names that have been among the best performers in this dramatic decline,” Miller wrote, “will almost certainly be a portfolio that underperforms the market as the economy and the market recover.”

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Tags: Amazon, Bill Miller, Boeing, John Maynard Keynes, Miller Opportunity fund, S&P 500, Stocks

Harvard University has instructed its $41 billion endowment to develop a strategy to achieve net-zero greenhouse gas emissions from its investment portfolio by 2050. The decision was made by the Harvard Corporation, the university’s highest governing body, in response to a resolution adopted by the faculty of arts and sciences in February that called for fossil fuel divestment.

“Harvard’s endowment should be a leader in shaping pathways to a sustainable future,” Harvard University President Lawrence Bacow wrote in a letter to members of the faculty of arts and sciences. “With this in mind, the corporation has directed the Harvard Management Company (HMC) to set itself on a path to decarbonize the overall endowment portfolio.”

Bacow said the directive will require developing sophisticated new methods for measuring emissions associated with the investment portfolio and then systematically reducing them across the entire portfolio.

“We believe that this approach, which considers the investment portfolio as a whole, rather than simply targeting the suppliers and producers of fossil fuels, is the right one for the university to pursue,” he said. “Advocates for divestment from fossil fuel companies may not be satisfied with this approach, but we believe that divestment paints with too broad a brush.”

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Bacow said the university decided not to divest fully from fossil fuels because it “cannot risk alienating and demonizing possible partners,” some of which he said have committed to transitioning to carbon neutrality and to funding research on alternative fuels and strategies to decarbonize the economy.

In support of the new pledge, HMC said it will use standards set by the United Nations’ Intergovernmental Panel on Climate Change, embed the commitment into its approach to managing sustainability considerations consistent with its fiduciary duty, and work with current and prospective asset managers to emphasize greenhouse gas emission reduction outcomes in the real economy. It also said it will collaborate with peer institutions that have made, or are looking to make, a similar commitment.

“Both HMC and Harvard are keenly aware that HMC cannot achieve these commitments in isolation,” HMC said in a statement.

HMC is currently implementing a five-year reorganization transition, which includes moving away from internal management of the portfolio and toward using external managers. The company said that as a limited partner in funds managed by external managers, Harvard, by definition and design, has little role in the day-to-day operations of the fund and its investments.

“Having the vast majority of the endowment managed externally comes with two separate, but related, challenges in executing a net-zero commitment,” HMC said. It said it has to work closely with individual asset managers to achieve the necessary portfolio transparency, and that it needs to consider a range of data and methods to create the most accurate depiction of the endowment’s carbon footprint.

“Gathering such comprehensive information for the first time will be challenging, and HMC will need to continuously refine and improve this collection and analysis as it works toward a net-zero portfolio,” HMC said.

HMC also said it will work with faculty and external experts to determine the most appropriate methodology for calculating portfolio emissions, and that, over time, it will need to gain greater transparency from many investment managers who currently do not provide it. Once it develops and adopts a methodology and gains the necessary transparency, HMC said it will determine the aggregate emissions of the endowment. To do this, the asset manager said working with external managers, other third parties, and the corporations themselves will be “critical parts” of the initiative.

HMC said it will work with investment managers to actively engage with their portfolio companies on environmental, social, and governance (ESG) issues to understand and influence a company’s exposure to, and planned mitigation of, climate-related risks. It will also encourage climate-related financial disclosures from portfolio companies consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Additionally, it said it will help portfolio companies develop a plan to reduce their greenhouse gas emissions, including measurable, science-based targets, consistent with achieving the goals of the Paris Agreement.

“By seeking to achieve net-zero greenhouse gas emissions overall by 2050, we recognize that we are heading down a path that will be more complex to undertake and execute,” Bacow said. “But we believe that it will ultimately have a wider and deeper impact in the shared effort to confront the challenge of climate change.”