Following the Legg Mason announcement that Bill Miller will step down as CIO after a 30 year run with the firm, Abnormal Returns details the difficulty of providing consistent above average equity returns:
Bill Miller co-manager of Legg Mason Capital Management Value Equity announced he was stepping down as CIO of LMCM effective April 2012. Like Woods Miller had a fifteen year period where he was seemingly unstoppable. His fund topped the performance of the S&P 500 every year over this time period.
Bill Miller has managed the Legg Mason Capital Management Value Equity fund (LMVTX) since 1982 and results of that data (relative to the S&P 500) is shown below. The data now shows the average performance pre-1991, the remarkable performance from 1991-2006, and the underperformance since due to the misplaced bets on financials.
Back to Abnormal Returns on the potential danger of allocating to outperforming managers:
In investing a fall from grace is a common occurrence. In 2011 we have seen both John Paulson who conducted the “The Greatest Trade Ever” and Bruce Berkowitz, Morningstar’s manager of the decade both stumble badly.
Source: Morningstar
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