Sitting in a corner at New York's mahogany-paneled 21 club, Bill Miller winced as his boss, Legg Mason Inc. Chairman Chip Mason, pointed out that his star fund manager was on track for a ninth year of beating the Standard & Poor's 500-stock index.
Mason quickly caught himself. He turned and smiled, adding: "We don't mean to jinx you, of course, Bill."
Three weeks remained before Miller's $12 billion Legg Mason Value Trust Fund would close another year of outperformance and extend an unparalleled winning streak.
"This year isn't over yet" was all Miller told his guests at the company's annual press lunch.
Perhaps it's just superstition, but even in December, with a 24 percent return for his fund--topping the S&P's 16 percent--Miller won't commit to ending the year by beating the index most stock pickers use as a benchmark.
His nine-year run is unique in the history of mutual funds. The best Fidelity Investments' celebrated Peter Lynch attained was seven years, while Vanguard Group's John Neff did it for six years, although he managed that feat twice in the 32 years he ran Vanguard's Windsor Fund.
Miller's feat is especially notable because of the investing style he espouses. He calls himself a "value investor," a strategy at the bottom of the mutual fund performance heap for much of this decade.
Value investors buy stocks with share prices that are low relative to earnings, figuring they have a long way to rise. Yet the hottest stocks of the 1990s, including Amazon.com Inc., America Online Inc. and Yahoo Inc., have operated for years with little or no earnings, never mind price-to-earnings ratios.
That hasn't deterred Miller. "One of the big shifts we made in 1995-96 was into technology," he said. "A lot of value people at that point were increasing their weightings in paper and chemicals. We said, hey, the technology stocks are cheaper."
So Miller bought into Dell Computer Corp.
"We were wondering why we should buy a paper company that was losing money and might never make money when we could buy a company that was doing great at six times earnings and growing rapidly."
Since January 1996, Dell has risen 4,087 percent. S&P's index of paper and forest products has risen 53 percent.
Still, Miller's not running a technology fund. His top holdings include Chase Manhattan Corp., Bank One Corp. and Fannie Mae.
He looks for intrinsic value, and he looks at each company one by one. He is especially skeptical of many of the new dot-com companies that have propelled other fund managers to returns four and five times his own this year. He ranks in the top 1 percent of all funds for the past five years, averaging 39 percent a year, but only the top 19 percent for this year.
"There's value in all of them," Miller said. "The problem is, the value's a lot lower than the current stock price."
That's what Miller's still looking for and will continue to seek next year, perhaps an even tougher task.
More than 25 percent of Miller's holdings as of Sept. 30 were in four stocks that would deter a traditional value manager--AOL, Dell, Gateway Inc. and Nextel Communications Inc. Nextel lost $312 million in the third quarter.
With 12.3 percent of the fund's $12 billion assets invested in AOL, with a forecast price-earnings ratio of about 300, Miller is betting that his model for Internet success holds.
It's the same theory that he believes will account for a 10-fold increase in the price of Amazon.com stock in the coming years.
"Part of what Amazon's got going for it is something similar to what people missed when AOL was selling down in the dollar-a-share area, which was that Amazon has customers," Miller said. "The scarce resource in the online space is customers."
As a result, Miller bought Amazon heavily in September and October, when the stock was trading between $60 and $70 a share. Now, it's more than $90 a share. He has not sold any AOL since the spring. In fact, Miller isn't selling any of his major holdings.
He has been adding financial shares, with Chase, Fannie Mae, Bank One and Citigroup Inc., which together account for more than 11 percent of the fund's assets, all in the fund's top 10 holdings.
"Subject to what the Fed does, the market should grind its way higher over the next 12 months," Miller said. "We think that bonds will be much stiffer competition for stocks in the next year than they have in the last couple of years. So we favor stocks that look like bonds--financials and things like that."
The risk of the Legg Mason Value Trust Fund lies more in the nature of missed opportunities in any given year than in outright risk of a loss of capital.
Because of his investing style, Miller is rarely at the very top of the performance heap. But he offers consistency and a broad view of the markets.
He is constantly running scenarios. He has half a dozen for Amazon, for example, with the worst case showing the stock losing half its value and its best--the one Miller accepts--leaning toward a 10-fold increase.
"No one can figure out what the market's going to do," Miller said. "But sometimes you can figure out where things are mispriced within the market."