Baltimore’s Bill Miller attempting a comeback

Legend at Legg Mason became a pariah during financial crisis

For more than 30 years, giving your money to Bill Miller at Legg Mason was one of the most reliable ways to turn a profit. He beat the returns on the benchmark Standard & Poor’s 500-stock index for 15 years running, a feat unmatched among the legends of Wall Street.

And his fall from grace was nearly as spectacular.

During the global financial crisis of 2007-2008, the famed stock picker’s bets turned bad, and once-loyal clients took their billions and left. And soon enough, he left the Baltimore investment house that had flourished on his good fortune.

“I regret I didn’t retire in 2006,” Miller joked. “Then I would have had this extraordinary record nobody else ever had. They would have thought I was a genius. By 2009, I was like an idiot.”

By 2019 or 2029? Well, Miller’s working on a record. From a mostly sparse office in the Alex. Brown Building downtown, he’s staging one of Wall Street’s most closely watched comebacks. And he has returned to the game with an unusual playbook.

He’s running two mutual funds — just as stock pickers are losing favor and investors are flocking to index funds. And he has launched a hedge fund — just as that industry is retracting.

The biggest hurdle, of course, is what is seen as the future of investing: a dramatic turn toward complex computer algorithms and artificial intelligence — and away from the human touch, the instincts and the judgment honed over decades that once put Miller at the top of the heap.

With fewer than 20 employees, Miller Value Partners is a small fraction of what Miller once ruled, but he beams with pride as he shows a visitor the view of Baltimore’s skyline from one window.

After spending decades trading under the flag — and restrictions — of Legg Mason, he is on his own. His two mutual funds, the Miller Opportunity Trust and Miller Income Fund, have about $1.7 billion in assets — modest, compared with the more than $70 billion he managed in his heyday at Legg Mason.

“I’m taking a lot of risk here by doing these things that could go over a cliff,” he said.

Stock pickers are losing their grip on the trillions of dollars Americans invest every year. Over the past year, investors pulled $341 billion from funds that rely on stock pickers, according to Morningstar, a research firm. Meanwhile, index funds gained $505 billion in assets.

And a recent JPMorgan Chase report estimated that 10 percent of daily trading is done by humans.

“In the ’80s and ’90s in order to make an investment, you would have to go see a broker. Now you can just take your phone out,” said Tom Lin, a law professor at Temple University who has studied the effect of technology on financial markets. “There are more convenient and faster ways to invest.”

Miller’s interest in the stock market was sparked by watching his father, who worked as a terminal manager at a trucking company, scan the business pages everyday.

“We didn’t have any money,” he said. “My dad looking at stock pages was a measure of hopeful thinking.”

After graduating from Washington and Lee University and serving in the Army, Miller married an accountant at Legg Mason. While waiting for his wife to finish work, he spent hours standing around its office reading financial documents. Eventually, Legg Mason hired him as a research director, and he later helped launch the Legg Mason Value Trust fund.

Miller joined the legions of “value investors” looking for undervalued companies with solid fundamentals. When the fund struggled after the 1987 market crash, Miller tweaked the strategy. The fund would not just buy “stuff that was cheap statistically but companies that could actually earn decent returns but happened to be cheap temporarily for a variety of reasons,” he said.

Some rivals cried foul. They argued that a traditional value investor wouldn’t be wagering on pricey stocks such America Online and Dell Computer that had bolstered the Value fund. Miller’s strategy distorted the definition of value investing, they said.

“One thing that was different about him is he had a more flexible definition of value,” said Bridget Hughes, director of research at Morningstar. His commitment to tech stocks in the 1990s and early 2000s defied conventional wisdom, she said. “Those were not considered value stocks back then.”

Still, it was a winning strategy. Someone who invested $1,000 in the Value fund with Miller in 1993 earned more than $6,000 over the next decade, twice what they would have seen by investing in the S&P index.

His savvy earned him the ear of billionaires such as Microsoft’s Bill Gates and Amazon’s Jeff Bezos.

Miller’s streak began to crack during the financial crisis. The Value fund had reached more than $20 billion in assets by 2006. It lost 6.6 percent of its value in 2007, the first time it had trailed the Standard & Poor’s index in back-to-back years since 1990. In 2008, it lost more than 50 percent of its value as Miller held onto losing bets on Bear Stearns and American International Group long after many investors had bailed.

“In the 2008 correction, he tried to pull out that old playbook,” Hughes said. “But it didn’t work.” Investors fled. “Our strategies were good,” Miller said, but not adequate to deal with the crisis the country faced.

It took a physical toll on him. He gained more than 40 pounds during the crisis and woke in the night to check stock prices.

As the losses piled up, Miller handed over leadership of the Value fund in 2012. After more than 30 years at Legg Mason, his role began to shrink.

Miller could have retired. He is wealthy and commutes between Baltimore and Vero Beach, Fla., a few miles from President Donald J. Trump’s Mar-a-Lago resort.

Instead, he is doubling down. This year, he bought two mutual funds he had started at Legg Mason: the Miller Opportunity Trust, which has $1.6 billion in assets and focuses on buying stocks, and the Miller Income Fund, which has $120 million in assets and buys stocks, bonds or other financial products that produce income, such as dividends.

“I would just call it the next stage as opposed to a second act,” Miller said.

At Legg Mason, Miller said, “I spent a lot of time doing stuff that I really didn’t want to do, like traveling all over the world and pitching for business and meeting with clients ... whereas now I’m much more in control of my own time.”

So far, the Opportunity Trust is outperforming the S&P, though Miller said he is not trying to re-create the streak.

“I don’t think there’s much to prove except I’m not senile, maybe,” he said.