Bill Miller is going shopping.
The only mutual fund manager who has beaten the market every year this decade, he identified
long before the crowd. Now he likes the looks of a much more low-tech play: supermarket chain
"It's our most recent purchase," Miller told me this week on a visit to New York from Legg Mason's Baltimore headquarters. "We've been buying some every day."
Miller likes the fact that the stock, down some 40% this year, is a "solid company, with a good return on capital, that provides an essential service." He expects it soon to be an average-size holding in his
Legg Mason Value Trust, at about 2 1/2% of the portfolio.
That traditional value pick is less controversial than some of his other recent buys. Miller picked up
in September at around its current price in the high-70s. But he's still buying the e-tailer, which he regards as a long-term winner. "It's either going to do much better or much worse. We think it will do much better, on a risk-adjusted basis, than the market."
A regret this year? No, not selling a big chunk of his largest position, AOL. Rather he regrets what he did with the proceeds. "Buying
at 50!" Miller chuckles as he considers the price. It closed at 16 Wednesday. But he still thinks the trash-hauler is a good pick. "It's about 30% to 40% too low."
As for AOL? "I'm still quite bullish," Miller says, in large part because he thinks that the Internet giant keeps very good books. "Accounting is so conservative that cash earnings are roughly double reported earnings," he estimates.
Third Avenue at a Crossroads
Contrary to what you think if you've ever seen the floor of the
New York Stock Exchange
, Wall Street regulars are sometimes a pretty polite bunch.
I expected a lot more pushing and shoving at this week's
Third Avenue Funds
investor conference. I mean, both of TAV's equity funds have been bleeding money for a while now as many skittish shareholders, tired of single-digit returns, grew frustrated and yanked their investment dollars.
Third Avenue Value returned a meager 4% in 1998 and 8% so far in 1999. The more aggressive and concentrated
Third Avenue Small-Cap Value has gained just 6% so far this year. Sure, they're in the top fifth of their category, but that's the much-maligned small-cap value group, and lately growth is the only label this gravity-defying bull cares to wear.
But the suits in attendance at the TAV conference were an orderly bunch. A crowd of several hundred listened quietly to sales pitches by the chief executive officers of TAV's big positions:
And Third Avenue Value manager Marty Whitman? Well, he was still star of the scene. Though an unlikely celebrity, the seventysomething industry icon, known more for his candor than his cachet, was much in demand, walking the aisles with a ready handshake.
Is this a sign that times are changing for the beleaguered deep value fund?
Times had better, because it's clear Whitman won't be changing his ways anytime soon. He's as committed as ever to picking bargain stocks based on strong long-term numbers, "safe and cheap" as he calls them.
And that means that shareholders are asking, "Should I stay or should I go?" That's a question I have to ask myself. As readers of this column know well, I bought Third Avenue Value a year and a half ago, after a panel of experts I consulted for a
story unanimously chose it as the best mutual fund to own in 1998.
Well, the market didn't prove as volatile as expected, and the risk-averse Whitman, who steers clear of high valuations at all costs, was soon left behind.
But time to get out? Despite a still excellent long-term record, it's been a long time since fund returns broke into the double digits. And although a buy-and-hold-forever philosophy is usually very tax efficient, Whitman has had to part ways with some holdings to meet redemptions, and that could spell a hit for investors. Plus, although he's managed to do a lot better than most of his peers, Whitman's fund is still far behind my other value holding,
Oakmark Select, which has delivered 25% in the past 12 months.
I may not prove as patient an investor as Whitman, but I'm not selling yet. Recent performance has picked up, and the fund's early investment in semiconductor equipment companies may yet pay off. Also, the amount I have at stake isn't that great compared to my core portfolio (much of which is in index funds).
Selling now would just mean selling low. I had hoped to earn more with this purchase, but given a long time horizon, I think Third Avenue still fills a place in my portfolio.
Brenda Buttner's column, Under the Hood, appears Thursdays. At time of publication, Buttner owned shares of the Third Avenue Value fund, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While she cannot provide investment advice or recommendations, Buttner appreciates your feedback at