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Bill Miller |
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Joined: 12 Apr 2005
Posts: 488
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 Posted: Wed Jun 27, 2007 7:43 am Post subject: Bill Miller |
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| Quote: | The situation today is more complicated. Stocks are cheap in relation to bonds, in my
opinion, and U.S. stocks, especially the U.S. mega-caps that were so expensive in 1999, appear
particularly attractive on a long-term basis. The popular winners of today remain, as they have
for several years: energy, materials, commodity-related companies, China, India, emerging
markets, and non-U.S. generally. In the first quarter, materials was the best sector, but anything
hard asset or infrastructure related did pretty well.
We benefited particularly fromour large holdings in steel stocks, which rose over 30% in the
quarter. Our also large homebuilder position, on the other hand, declined by about the same
percentage. You may be surprised (but you should not be) that we are more cautious near-term
on our steel position, but increasingly optimistic about the builders.
The news flow on steel is great, and will likely get even better in the second quarter, as
margins expand due to the pricing umbrella provided to the integrated companies such as
United States Steel Corp., by the increase in scrap prices and the resultant price increases
instituted by market leader Nucor.
The news flow on builders is terrible, what with the subprime collapse, foreclosures soaring,
home prices falling, and the companies mostly losing money.No housing bubble now! But the
builders trade around book value, and some, like our holdings Beazer Homes USA Inc. and
MeritageHomes Corp., well below book value. Buying builders around book value or below has
historically been a prescription for excess returns for anyone willing to look out a couple of
years. But whenever they reach book value, investors don’t want them because they are looking
out the next few months or so, and are fearful of what new bad news may occur.
In general, you should expect us to be selling what people like, and buying what they hate.
This is not done naively, it is just that mostly what people like is expensive, and what they don’t
like is cheap, and buying the cheap asset and selling the expensive one seems logical, except
when you actually do it.
One of the new things we have been doing, which may seem at odds with that, is some
private equity deals. We bought a position in a fund called AP Alternative Assets, a funding
vehicle created by Apollo, one of the largest and most accomplished private equity firms. Since
The Investment Commentary is not a part of the Quarterly Report to Shareholders.
the investment, Apollo has given us the opportunity to invest alongside them in some of their
deals. You will hear more about these investments in future letters.
iv Investment Commentary |
http://www.leggmason.com/funds/ourfunds/rts/Opportunity_Trust_3-31-07.pdf
There are also a lot of fantastic insights of a more general nature in the annual report. A must read:
http://www.leggmason.com/funds/ourfunds/rts/Value_Trust_3-31-07.pdf |
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HenryTo
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rffrydr
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rffrydr
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Location: Sunny California
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| Posted: Wed Jun 27, 2007 8:00 am Post subject: |
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ASX down five days in row (shout-out Goodfella) and Chinese steel inventories should tatter that pricing umbrella by Christmas (no favors from today's durables)--in any case, what he's really been riding and won't say is the steel buyout binge. To admit that would be out of character.
As is well known I like the contrarian play but still won't touch the builders. "Every time" is a deceptive guide when it comes to RE. 1990, 1979? The cycle is so long and the prejudice is so strong that it loses its meaning vis-a-vis an investment window. We've discussed how fallow land is "bgooked" in these dogs--and how the marketability of that land is driving excess production even now. Besides he's been in these bombs so long it wasn't really a contrarian play--still the faith of bubble there I suppose. 20 years of capital markets ascendency with ever more refined levels of indexing and these traders don't know how to handle "time-frames."
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