Value Trust the Efficient Market Hypothesis

Learning Objectives

Value Trust

The Efficient Market Hypothesis

Read about Mutual Funds and Stock Markets Consider Bill Miller’s Investment Philosophy Consider what Value Trust’s success means for Trust s the Efficient Markets Hypothesis? Consider a relationship between risk and return

Financial Analysis and Decisions – SchMgmt-640.

Professor Andrew Hall

Financial Analysis and Decisions – SchMgmt-640.

2

Professor Andrew Hall

Value Trust

Value Trust

Bill Miller’s Investment Miller s Philosophy

A Mutual Fund

• 8,044 of them in 2005 • Owning 20% plus of outstanding stock of U.S. Companies

Outperformed S&P 500 I d O t f d Index 14 years in a row i Average returns of 14.6% Surpassing S&P 500 average returns by 3.67% a year

Financial Analysis and Decisions – SchMgmt-640.

Professor Andrew Hall

Financial Analysis and Decisions – SchMgmt-640.

4

Professor Andrew Hall

Investment Philosophy

Take a long view Look for cyclical and secular mis-pricing

• Cyclical markets are the short-term trends that happen within th long-term secular market. ithi the l t l k t

Investment Philosophy

Buy low-price, high intrinsic-value stocks

• Look for negative emotions influencing stock prices and buy the stocks

Take heart in pessimistic markets Lowest average cost wins

• Buy stocks as they fall in price and your average price will be lower than your highest price

Buy low expectation stocks Take Risks

Beware of Valuation Illusions

• Stocks whose prices are “too high” can be good value

5 Professor Andrew Hall Financial Analysis and Decisions – SchMgmt-640. 6 Professor Andrew Hall

Financial Analysis and Decisions – SchMgmt-640.

1

Bill Miller’s View

He uses fundamentals analysis, with A “contrarian” viewpoint

• Most of the time emotion is in play so bet against the p y g emotions

Types of Analysis

Technical

• Charting trends in:

• • • • • Stock prices Volume of trades Sentiment Using number sequences, Chaos...