Essay on Bill Miller Value Trust Case Study

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In 2005, Value Trust, an $11.2 billion mutual fund managed by Bill Miller, had outperformed its benchmark index, the S&P 500, for a consecutive 14 years. This record marked the longest streak of success for any manager in the mutual fund industry, doubling the previous record. While Miller had been beaten in individual years, no manager has been as consistent. This has provoked many different questions in academia because it defies current conventional theories such as the Efficient Market Hypothesis (EMH). This case study will help try and explain Bill Miller’s phenomenal success while also pointing out some underlying reasoning. Value Trust has surpassed the S&P 500 over the previous 14 years by an average total return of 3.67%,…show more content…
One theory that is widely accepted by financial scholars is the Efficient Market Hypothesis, which is the notion that capital markets incorporates all relevant information into existing securities’ prices. EMH has three forms: strong, semi-strong, and weak efficiency. This theory lies in the assumption that technical analysis is useless since it depends on historic data. In our opinion, EMH does not fully explain the market and has proven faulty over the years, such as: the Great Depression, tech bubble, and our latest recession. We believe there are other variables that EMH fails to incorporate, such as: Behavioral and Psychological Finance, which Miller does take into account. While Miller may have been modest when saying the streak consisted of 95% luck, as Stephen Jay Gould stated, “long streaks are extraordinary luck imposed on great skill.” Miller has a certain methodology when selecting companies, which could help explain his consistency. Miller believed in buying low-price, high intrinsic-value stocks, while taking a long-term view on the market. Miller’s approach was research-intensive and highly concentrated with nearly 50% of Value Trust’s assets invested in just 10 large cap companies. One problem that our group is concerned with, that Morningstar points out, is the size of the fund and the amount of assets it contains. The typical actively managed domestic stock

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