Bill Miller, Chairman and Chief Investment Officer of Legg Mason Capital Management, believes that investors who fail to purchase American large capitalization stocks may be missing a “bargain of a lifetime”. In an article appearing in The Financial Times today, Mr. Miller argues that large cap stocks have not been as cheap relative to bonds since 1951 and concludes the article as follows: “I was one year old then, but did not have sufficient sentience to invest. I do now, and if you are reading this, so do you.”
Bill Miller is best known for beating the S&P 500 index for fifteen straight years at the Legg Mason Value Fund (ending in 2006). While considered to be a value investor, Mr. Miller has been more willing to invest heavily in technology than most other value investors and he encountered some trouble with financial stocks including Bear Stearns during the financial crisis. His current portfolio can be found at the Dataroma website.
Here is a brief excerpt from the article summarizing Bill Miller’s bullish view on large cap stocks:
It’s a truism in capital markets that the best investments are those that have previously done worst, where expectations are low, demand is down, and prospects appear at best highly uncertain. In 1980, bonds had been through a 30-year bear market relative to stocks, inflation was soaring, yields were at historic highs, yet expected to go higher, and a long bull market in bonds was at hand.
The idea that US interest rates would be near all-time lows 30 years later would have been dismissed as ludicrous. The situation is now reversed, with stocks having underperformed bonds for decades.
The point here is simple: US large capitalisation stocks represent a once-in-a- lifetime opportunity in my opinion to buy the best quality companies in the world at bargain prices. The last time they were this cheap relative to bonds was 1951. I was one year old then, but did not have sufficient sentience to invest. I do now, and if you are reading this, so do you.
Bill Miller’s bullish thesis is quite similar to the views expressed by Whitney Tilson this morning in a CNBC interview. The fact that many value investors are coming to similar conclusions is not a signal for others to blindly follow, but should at least pique the interest of intelligent investors and encourage further investigation of the current opportunities available in larger capitalization stocks.