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Top Fund Manager - Bill Miller, Legg Mason

Bill Miller, a force to be reckoned with in the mutual fund investment world, is the Chief Investment Officer and the Chairman of Legg Mason Capital Management. He manages two funds through Legg Mason. The first fund is the Legg Mason Opportunity Trust. The second is the Legg Mason Value Trust.


With Bill Miller, Legg Mason has seen much progress since 1981. From 1981 to 1985, he was the director of research. The Legg Mason Value trust has been managed by Miller since its 1982 inception.


From 1991 to 2005, the Legg Mason Value Trust did what is considered to be almost impossible by the "efficient market hypothesis." The efficient market hypothesis states that consistent returns cannot be achieved in excess of the returns achieved by the market on what is called a risk adjustment basis. The risk adjustment basis is a bank's assets being weighed according to their credit risk.


However, with Bill Miller, Legg Mason was able to achieve consistent returns through its value fund. This resulted in Miller being ranked within the top 30 of SmartMoney's most influential people in investing. He was touted as the Greatest Money Manager of the 1990's. He has achieved many honors throughout his career, which started after his 1972 graduation from Washington and Lee University. However, he did not go straight into investing, but served as a military intelligence officer and acquired a Ph.D in philosophy from John Hopkins University.


As for how Bill Miller does it, his philosophy is that the lowest average cost is the winner. This means he goes for stocks that have a low average cost, but shows much promise in growth. Such all-or-nothing bets would come to define Mr. Miller's style. He usually holds about three dozen stocks at a time, compared to the hundred or so in a typical mutual-fund portfolio. He has welcomed negative sentiment about companies, which has let him buy more stocks as their prices fall; "averaging down" the per-share price he pays and netting him big stakes in companies - an enviable position during a rally, but a sticky position when he needs to sell.


When asked how he would know he made a mistake in buying a falling stock, Mr. Miller once retorted: "When we can no longer get a quote." In other words, the only price at which he was unwilling to buy more was zero."


Despite a rough period during the latest recession that has affected the Value Fund and many other funds, Miller predicts that 2010 will show much promise.


Bill Miller also serves as the Santa Fe Institute's Chairman of the Board of Trustees.
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