Bill Miller Conversation

Global Perspectives on Investment Management

LEARNING FROM THE LEADERS

Conversation with a Money Master

BILL MILLER, CFA

with FRED H. SPEECE, JR., CFA

Bill Miller, CFA, is chairman and chief investment officer at Legg Mason Capital Management, Inc., and was named ‘‘The Greatest Money Manager of the 1990s’’ by Money magazine. In this question and answer session, Fred H. Speece, Jr., CFA, interviews Bill Miller about his insights into portfolio management in general and value investing in particular.

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Conversation with a Money Master

BILL MILLER, CFA

Bill Miller, CFA, is chairman and chief investment officer at Legg Mason Capital Management, Inc., and was named ‘‘The Greatest Money Manager of the 1990s’’ by Money magazine. In this question and answer session, Fred H. Speece, Jr., CFA, interviews Bill Miller about his insights into portfolio management in general and value investing in particular.

Speece: You have an impressive long-term track record as a portfolio manager. Given today’s very efficient and sophisticated market, do we still have room for stock picking? Miller: When we discuss market efficiency, we run into a semantic issue about what exactly is meant by the term ‘‘market efficiency.’’ At Legg Mason, we believe that the markets are pragmatically efficient, which means that they are extremely competitive and usually beat most active managers. For example, fewer than 35 percent of large-capitalization managers beat the market in the recent 12-month period ending 30 June 2006, just under 30 percent in the past 5 years, about 20 percent in the past 10 years, and about 22 percent in the past 15 years. So, on average, the market has beaten 70 percent or more of all active managers in time periods longer than one year. Managers should start out with the belief that if they are trying to actively manage money and outperform the market, the odds are against them....