...For example, Bill Miller’s Legg Mason Value Trust (ticker: LMVTX), a mutual fund that has beaten its benchmark (the S&P 500 index) in each of the last 14 calendar years, routinely holds stocks that have seen their prices drop substantially recently. In making that choice, Miller essentially selects stocks that appear to be in trouble, but are ones for which the market seems to have overreacted—he invests “where there is fear.”1 growth and value Rather, we simply point out that doing so exposes us to greater risk and requires us to conduct much more extensive analyses. We are reminded, however, of a quote from Mark Twain, “Put all your eggs in one basket and—WATCH THAT BASKET!”8 An advantage of holding fewer stocks is that it is easier to monitor them, but, in general, we must be extremely confident of our analyses in order to hold so few stocks he tends to select the stocks of companies that are financially sound. Where Miller deviates from many other fund managers is that he often chooses stocks that have been beaten down in recent months/years. This provides us with another lesson. In the aftermath of the Dennis Kozlowski scandal, the stock of Tyco (TYC) dropped from $60 to nearly $8. Miller believed that the scandal had little (if anything) to do with the company’s core business model, so he bought heavily. The stock has since rebounded to the mid $30s, giving Miller a sizable return on his investment. Miller describes this as buying “where there is fear.”2 The lesson...
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...1. How well has Value Trust performed in recent years? In making that assessment, what benchmark(s) are you using? How do you measure investment performance? What does good performance mean to you? Bill Miller is a fund manager who has set a new pace in the financial markets. His firm has been on a winning streak for a record time of 14 years. In recent years, the markets were bearish yet Miller’s firm was able to not only surpass the S&P 500 mark but consistently have positive returns. He has a consistent index-beating record that is unmatched. The United States fund market is the largest in the world. The aggregate figures are an abstract reflection of the consistent growth of mutual funds investment. Majority of the people that own mutual fund investments in the 21st century comprise of nearly half of the households in the United States. This is a great increase from the 1980s where only 6% of the population had mutual-fund assets. Investment performance is measured based on its efficiency, returns and risk involved. Mutual funds enable the investor to diversify their portfolio without necessarily injecting a huge sum of money into the fund. This makes this investment efficient. Over the years, mutual funds have had good returns. The industry provides the investor a place where he can safeguard his investment from harsh market forces. As such, the investor is assured of making some gains from his investment. The fact that an investor does not have to actively...
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...Bill Miller and Value Trust Value Trust has surpassed the S&P 500 by an average of 3.67% for the previous fifteen years. Value Trust also maintained Morningstar’s five star rating. Mutual fund investment performance can be measured by finding out its net asset value and Annual Total Return. Net Asset Value can be computed as the fund’s total assets minus the liabilities divided by funds shares outstanding. Annual total return can be measured by the increase or the decrease in net asset value plus the fund’s income distribution. These are used to find the measure of the percentage of annual growth rate of net asset value assuming that reinvestment, and the absolute dollar value today of an investment made at some point in the past. Good performance would require the investment to provide a measurable reward-to-volatility trade-off and to consistently outperform the major markets such as the S&P 500 and Russell. Miller’s methodology includes buying low-price, high intrinsic-value stocks, researching areas of the market that look least promising, the lowest average cost wins, high price stocks can still be good (Wal-Mart and Microsoft), think long-term and anticipate rather than reacting, mixture of cyclically underpriced stock and secularly underpriced stock, be aggressive when stocks are low and less when stocks are high, and finally they must be able to take risk for huge gains. His methodology takes into account behavioral finance. He looks forward to the market’s overreaction...
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...Summary of the case: Billy Miller, who manages the Value Trust Fund, consistently leads his company to beat the mutual fund market for 14 years. This remarkable outcome is viewed as impossible mission by those economists and financial analysts. Is this a pure luck or Bill Miller has some unique strategies to run the company? Miller said: “Maybe it’s not 100% luck. Maybe 95% luck.” If it is just lucky to achieve the result in today, should we invest our money into this fund? Or we should do a detailed analysis before we make a decision. Problem No.1 Define the problem of the case: Is Value Trust a good company to invest? 1) What is mutual fund? What does it do? 2) How is the market of mutual fund? Is it doing good or bad? 3) How is the Value Trust Company doing compare to others? 4) What is market prospective of mutual fund and how does it fit with Bill Miller’s strategy? 5) Is Bill Miller lucky to get the prominent result or he owns certain investment skills 6) Should we invest? Market Analysis: Mutual Fund market was the largest in the world. It serves several economic functions for investors, afforded the individual investor the opportunity to diversify his/her portfolio efficiently without having a large amount to achieve the efficiency; a higher return could be earned by investor who has professional expertise compare to securities; Isolating individual investor and the painful vicissitudes of the marketplace. With these advantages, investors...
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...Bill Miller and Value Trust Case Analysis Case Facts: 1 By middle 2005, Leg Mason Value Trust managed by Bill had outperformed S&P 500 index for 14 years in a row. This was longest successful run by any fund manager. The average return on the fund was 14.6% which surpassed the S&P by 3.67% per year. The value trust only had 36 holdings, 10 of which accounted for 50% of the fund’s assets. No manager had matched Miller’s consistent index beating record. Miller’s results were in contradiction to the conventional theory which suggests that it is extremely difficult to beat the market on a sustained basis as it is characterized by high competition, easy entry and informational efficiency. Problem Statement: The Lag Mason Value Trust has been able to outperform the S&P 500 index for 15 consecutive years till 2005. Will the trust to able to consistently deliver similar performance in future? Should a rational investor buy shares in Value Trust as on middle of 2005? What can be possible reasons for the exemplary record of the Value Trust? Can the reasons of the trust’s success can be only attributed to the trading skills and style of Bill Miller or is it sheer luck? US Mutual Fund Market: The mutual fund market in the US has seen exponential growth in the last 30 years. The numbers of mutual funds have increased from 361 to 8,044 in between 1970 to 2005. By 2004, Mutual fund owned nearly 20% of the outstanding stocks of US companies. The value of...
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...Bill Miller and Value Trust outperformed the Standard & Poor’s stock index from 1991 to 2005. I used the S & P 500 Index benchmark to make that assessment. Mutual Fund investment performance or Annual total return can be measured as the increase or decrease in net asset value plus the fund’s income distributions. Net asset value is computed as the fund’s total assets less liabilities, divided by the number of mutual fund shares outstanding. Another way to measure investment performance is to use the internal rate of return (IRR). This gives you the periodic rate of return at which your invested dollars produce the investment results you see at the end of the period. Good performance means that the investment would have to provide returns necessary to meet an individual’s goals. Mutual Funds investments don’t have to beat a specific benchmark to be successful. Bill Miller was able to make consistent abnormal trading profits which would explain the fund’s performance. Mutual funds are also likely to outperform the S & P Index when small firms outperform large ones and underperform when small firms experience worse. Miller’s investment strategy explains his good performance to a small extent but most of his success in beating the market was luck and market timing. His portfolio is diversified compared to an individual stock portfolio. He buys and holds stocks with a turnover rate of 9% compared to a typical fund’s turnover rate of 85%. He usually holds on to winning stocks unless...
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...Bill Value Trust is a mutual fund that has performed well against various indexes in the years leading up to 2005. Value Trust takes S&P 500 as its benchmark index, which it has outperformed for the last 14 years. Prior to 2005, Value Trust had an average annual total return of 14.6%, which was 3.67% higher than S&P 500’s average annual returns. From exhibits 1 and 5 we can see that the return was much higher for Value Trust (15.04%) compared to the S&P 500 (9.48%) over a ten year period. The NAV was consistently increasing from 1994 to 2000 up until the market crash when the NAV decreased but then again increased consistently until 2004. The NAV is an investment measure and increase indicates a better performance. Also from exhibit 1 we can see that the annual return of Value Trust was higher than the S&P 500’s over the years. According to the case Value Trust uses S&P 500 however we should make some analysis on what kind of shares S&P 500 deals with versus what kind of shares Value Trust deals with. S&P comprises of 500 widely held common stocks in other words large cap stocks. On the other hand 50% of Value Trust’s assets were of only 10 large cap companies and Value Trust was open for investing in growth companies. This made the beta of Value Trust (1.31 as taken from Exhibit 1) higher than S&P’s beta indicating that Value Trust is riskier. In this case to make the benchmark more comparable to Value Trust we chose to use other benchmarks, such as the S&P 400 mid-cap....
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...The purpose of this paper is to give a peer review of the presentation team’s performance. The topic covered by the team was the role of financial market efficiency in corporate finance and its relevance to fund manager Bill Miller, Value Trust, and potential investors. We will look at the following areas in assessing the performance of the presentation team: ■ The value of supplemental readings ■ Quality and content of the concept lecture ■ Quality of the case analysis ■ Strength of the case recommendation ■ Presentation and communication skill Value of Supplement Readings The analysis team recommended the following additional readings: Chapter 8 of Brigham/Ehrhardt’s “Financial Management” textbook, Burton Malkiel’s “Reflections of the Efficient Market Hypothesis: 30 Years Later”, and Malkiel’s “Passive Investment Strategies and Efficient Markets”. All three recommendations are excellent sources for basic and advanced understanding of the case’s key financial concepts. “EMH: 30 Years Later”, especially, is a terrific read providing the original EMH founder’s thoughts on the theory’s relevancy even in today’s financial world. We also would like to recommend two academic papers that offer inquisitive views of EMH and its potential fallacies. Both works - Daniel Kahneman’s Nobel prize work “Maps of Bounded Rationality” and Lawrence, McCabe, and Prakash’s “Answering Financial Anomalies: Sentiment-Based Stock Pricing” - explore the realms of behavior finance. By questioning...
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...Mr. Clark, Comp. 1 Formal Essay #1 (Final Draft) 02.09.11 Paycheck-to-Paycheck A popular phrase when out with friends is “I’m so broke.” However, it’s just a figure of speech, right? Most of us are fortunate enough to be well off with finances and have the luxury to have a little shopping spree here and there occasionally. But for the Millers that’s not the case at all. They have to live paycheck-to-paycheck and barely make ends meet. The town of Wanaque, New Jersey is very small, three miles long to be exact. But in this small town there are all types of social and economic classes from very poor to very wealthy. A family with a set of twins and another child just hitting elementary school would certainly be affected by this economy, yet the Millers still fight to keep their family functional. People take many things for granted like food, water, and shelter. Most of us can simply pay our utilities bills, sleep under a safe roof, and go grocery shopping when your refrigerator is empty. For the Millers it’s a different story. Anna Miller, mother of three, works part-time as a nanny for two homes and in retail. Eric Miller has been working at the same job for the past six years, and although he gets a holiday bonus every Christmas, he has never gotten a raise. Their three kids, twins Jason and Justin, and third child Jared are all attending the middle school in town. The family lives on the outskirts of our town in a neighborhood that’s not so great. They live in...
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...Explore the ways in which Arthur Miller presents the character of between his entrance and Parris’ line ‘What happened?’ in Act 1 Miller presents the character Proctor as a character that is isolated form the Salem Community by choice as he does no believe that there is witch craft nor does he like the way Revlon Parris leads the service. Act one is when Miller first shows the audience Proctor and Abigail alone together in the play at Parris house. The way in which Miller decides the actions towards each org and their speech shows they once had feeling for each other. Miller uses colloquial language within their convosation which indicates to the audience that the feelings may still be their between them. The use of the speech," Give me a word, john, a soft word..." Conveys to the audience Abigail lust and desire for Proctor , the response from Proctor is the falling of his smile, which indicates the past haunts him and therefore he must try to rid of it. The audience can see that Proctor knows what is right but is finding it hard to move of from the past affair he had with her. Proctor trying to rid such feelings for her shows to the audience that he knows the has made a huge mistakes and is trying to fix this; therefore making him appeal to the audience as many could relate. Also Miller makes the audience sense the determination from Proctor and the want to change his ways. This can be seen in " I would cut of my hand before I ever reach for you again." The noun "ever"...
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...identifying and managing unsolvable problems. It stresses the importance of recognizing that some situations don’t have solutions- and that life doesn’t always have to be either/or. While some issues are just problems that have a definite answer, the more challenging issues are polarities. (Miller, 2008, para. 3&4).” For example, a manager of a team knows that she must constantly go back and forth between focusing on the team’s performance as a whole and on each individual team member’s performance. Were she to focus on one avenue more than the other, we can safely assume she was not as effective as she could be (Hirschhorn, 2001). “They are called paradox, dilemma and tensions. We refer to them as polarities; but whatever they are called, it has been documented that individuals and organizations that manage them well outperform those that don’t. Polarities are competing values that need each in order to achieve a greater purpose over time. One example is activity and rest. We need both in order to live a healthy life. (Irvin, 2008, p. 1)” 2. Identify the polarities in the Bill Ford Video I identified the following polarities within the Bill Ford video (Kaplan, 2009): 1) Bill using his strength to manage the big picture of the company as opposed to the day-to-day. “He’s better at broad,...
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...Power of Success The unflinching conflict of obtaining success is eloquently portrayed throughout Arthur Millers “Death of a Salesman”. In this modern tragedy, Miller successfully depicts the human condition in midst of denying failure. The play unfolds around a washed- up salesman named Willy Loman, whose obsession with reaching concrete evidence of success, creates unfortunate repercussions on his family, and himself. Willys conviction that a man must not only be like, but he must be well liked (Miller, 1250), along with his uninterrupted focus on prominence, reflects on his two sons, Biff and Happy, as he infuses them with values of social status as well as future success. Willy’s sense of self value depends on the response of others. Such gestures of recognition provide signals that society is a comfortable home for him, one where he hopes to make his sons as happily at ease as he (Jacobson, 249). This is doubtlessly a mirage of security for Willy, as he desperately suppresses his inner motions of regret, and refuses to embrace his conscious identity. Ultimately, Willy Lomans self- delusion of success disabled him to obtain his true identity, and influence a displacement of identity in his sons. Most people in today’s society develop a constant necessity to better their lives, as well the quality of life for their family. For many, this necessity stems from their core beliefs of what a comfortable life should contain in our society, along with secure elements for their...
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...Dream” is to know that in order to achieve these things in life you must work hard to succeed. Miller made this obvious by showing both success and failure. Willy Loman and his family had great dreams, but did not work hard to make them become reality. Willy and his family expected these things to happen on their own with little effort. As Willy’s nephew Bernard pushed Biff to put effort in his schooling, Willy and Biff just blew it off as though it was nothing. Biff expected his football skills to be enough to succeed, which he later found out wasn’t true at all. Bernard became very successful and Biff was the opposite. He didn’t do anything in his life and became nobody. Willy is another example; he expected good expected good things to come in life without effort. He expected his children to become successful so they could support him, but instead they became bums. The stress of not being able to pay bills and the failure of his children was so unbearable that he became absorbed in the past. Often oblivious to what was going on around him. Willy also became suicidal, constantly crashing his car and he also had a short rubber pipe that connected to the gas pipe on the water heater. From the given examples I believe that Miller did “speak” to the people by showing that things in life don’t always go as expected and you must work hard to achieve success. Arthur Miller maintained that Death of a Salesman was a tragedy. Although Death of a Salesman was serious, about...
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...experiences is one that offers an excellent approach to analyzing Arthur Miller’s play Death of a Salesman. By juxtaposing scenes of the protagonist’s present with scenes from Willy’s past, Miller provides insight for Willy’s behaviours and beliefs. Through lighting and sound techniques, Miller recreates significant moments in Willy’s life that shape him. Miller’s staging...
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