Bill Miller's 2007 Q2 Commentary

Bill MillerBill Miller, Chairman and CIO of Legg Mason Capital Management Inc., released his commentary on July 30, 2007.

I highlight some interesting points below:

  • Housing Stocks
    • Usually, but not always, when you read about some industry or company having the worst time since some period of years, or even decades ago, you will find that buying that industry or company when it was going through those difficulties proved quite profitable if your time horizon wasn’t measured in days or months.
    • The headlines today are all about this being the worst housing market since the early 1990’s. Had you bought housing stocks during that previous period of duress, you would have made many times your money and handily outperformed the market over the subsequent decade.
    • If we did not own housing or housing-related stocks (such as Countrywide Financial), we would be buying them now, amid the panic selling currently underway.
  • Energy and energy-related stocks
    • It is said the only thing worse than being wrong is staying wrong.
    • We are at or near the high prices for oil that were reached last summer.
    • If oil retreats from these or modestly higher levels over the next six months, it is likely that we are nearing the end of a long cycle. If it breaks out to new highs and stays there, then the secular story may carry the day.
    • Speculative interest in oil futures on the commodities exchanges is at record levels, while oil companies and others in the industry are net short the commodity, believing the price will decline.
  • Market Outlook
    • I am constantly asked for my market outlook, so I will give one, not because I know but because I am asked.
    • In the intermediate or long run, stock returns depend on valuation relative to fundamentals such as growth rates and return on capital.
    • According to data compiled by Bloomberg, stocks are now the cheapest they have been in 16 years. The S&P 500 is valued at 15.4x estimated earnings, the lowest since January 1991. Again, a pretty good time to be a buyer of stocks!
Direct Link (PDF) - Bill Miller's 2007 Q2 Legg Mason Value Trust Investment Commentary.

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