Sunday, December 5, 2010

Legg Mason's Bill Miller Sees U.S. Stocks Up 15% in Next 12 Months

Here's a quote from the November 2010 market commentary of Bill Miller (manager of Legg Mason value) .

"There is a lot more to go in the next twelve months, in my opinion, in stocks if not in bonds. That’s 12 months, not 12 days or 12 weeks. I think the market can be up another 15% in the next year..."
I am going back and looking at some of the older Legg Mason market commentaries. The following quote is from David E. Nelson, Chairman, Investment Policy Committee in October 2007:
"Even if the economy suffers a recession in 2008, we believe the market could show positive returns in 2008, though it would almost certainly go down first. In our view, a recessionary market decline would likely do the most damage to the sectors where optimism is currently greatest—such as global cyclicals—while doing the least incremental damage to sectors—such as the financials—where pessimism is already quite pervasive."
What was Credit Bubble Stocks saying in the fall of 2007? I actually specifically criticized Legg Mason for buying Countrywide Financial (CFC) stock, saying sarcastically that they "liked it at $30 and they like it even more under $20. They will probably get really excited about buying at $10." [I had written a post in August 2007 called Why Countrywide is Done.]

It is clear that Bill Miller and Legg Mason do not understand what is happening and haven't for a long time. Their strategy worked well during a multi-decade bull market where the key to success was to "buy the dips", but since January 2000, Legg Mason Value is down 47%.

Another complacent investor is Ken Fischer, who was bullish in October 2007 and February 2008, and who says that "the next 10 years are going to be just as good as the 1990s." He thinks that people like me are "idiotic" for being structurally bearish.

I believe that most investors, especially older baby boomer investors, have been psychologically conditioned to buy dips, and there is not much else behind their strategies.

These don't see real estate agents in Phoenix buying 20 houses with NINJNA loans, or people on food stamps, or people who have been unemployed for 99 weeks. They just don't know.

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