[00:03:19] Shawn O’Malley: If Miller’s first investment as a child hadn’t worked out, he could have been disillusioned and his remarkable investment career might have never even happened. But he pushed on, earning a degree in economics from Washington and Lee University while expanding his interests into philosophy in a PhD program at Johns Hopkins.

[00:03:38] Shawn O’Malley: The time he spent studying philosophy helped Miller learn how to think outside of the box, and he became gripped in particular by the intellectual movement known as pragmatism, which dates back to the late 1800s. When not working on his PhD, Miller began investing by using family money to pick stocks with until he gradually expanded into managing money for friends.

[00:04:00] Shawn O’Malley: He soon took to a job at a steel and cement manufacturer, serving as their treasurer and managing the company’s investment portfolio. From there, he came in contact with Legg Mason’s CEO, which led him to join the firm as its director of research. Just six months later, he helped launch the firm’s Legg Mason Value Trust, kickstarting his career as a professional stock picker.

[00:04:22] Shawn O’Malley: Over the next four years, Legg Mason’s Value Trust’s investment results hammered the competition, leaving a relative newcomer with the best performance results in the entire mutual fund industry. He’s since reflected that studying philosophy, pragmatism, and the great thinkers of the past very much laid the groundwork for his successful investing career, where he was both incredibly rational and also not afraid to think for himself and invest in things that scared others.

[00:04:50] Shawn O’Malley: Quoting from the book The Winner’s Circle, Miller viewed pragmatism as a means for looking beyond the obvious, that which was not necessarily true, and seeing the future possibilities from a different perspective than most investors. When Bill took over the fund, he began to depend less on expectations drawn from past series of events or carefully formulated economic or mathematical theories.

[00:05:12] Shawn O’Malley: Instead, his process weighed the probability of something happening in the future based on the current situation. This break from reliance on backward looking predictive analytics opened Bill to new places where accurate information might originate. With that said, Miller is a somewhat controversial figure in the value investing community today.

[00:05:32] Shawn O’Malley: While many revere his success, others take issue with classifying him as a value investor in the first place because his approach differs in practice from the two biggest faces of value investing, Warren Buffett and Benjamin Graham. Miller very much follows the same philosophy of these two greats by treating shares of stocks as real slices of ownership in companies, thinking long term and estimating intrinsic value.

[00:05:55] Shawn O’Malley: Yet he invests in companies that Buffett and Graham wouldn’t. Much of his success has come from investing early in tech companies like Amazon. When investing in companies hoping to be technological disruptors, especially in their early stages, this is There’s just a ton of uncertainty around their future that makes them uninvestable in the eyes of classic value investors.

[00:06:14] Shawn O’Malley: Instead, they usually focus on companies priced relatively cheaply to their tangible assets or earnings power. But as Miller has argued, any stock can be a value stock if it trades at a discount to its intrinsic value. He sees no basis then and categorically dismissing certain types of companies just because they’re in an early stage of their life cycle or because they compete in fast paced, competitive technology niches.

[00:06:39] Shawn O’Malley: Just a reminder on intrinsic value. This refers to the idea that companies have underlying value not perfectly captured by their price in the stock market. While stock prices swing wildly from day to day or week to week, intrinsic value is more of a steady estimation of what shares and company are worth to a long term investor who sees himself as an owner in the business.

[00:07:00] Shawn O’Malley: There are different ways to calculate intrinsic value, but the simplest explanation is to imagine estimating all of the future cash flows you’ll get from a company from now until some judgment day and discount them back to a present value per share today. The discounting process uses a discount rate meant to reflect the opportunity costs and risks associated with an investment and reduces the value of future cash flows into a more present value.

[00:07:26] Shawn O’Malley: The discount rate used is a subjective decision by the investor, though they usually range from eight to 12%. The further into the future a cashflow is expected, the less it would be worth today. And the higher the discount rate used, the lower the intrinsic value because future cash flows are discounted more heavily.

[00:07:44] Shawn O’Malley: So the difference between Miller and more classical value investors lies in this breakdown of intrinsic value. Speaking very generally, a more classical approach to value investing would focus on companies whose intrinsic valuation derives primarily from the cash flows they’ll generate over the next few years or quarters, which carries a greater weighting in a discounted valuation.

[00:08:04] Shawn O’Malley: This doesn’t mean that traditional value picks won’t produce steady cash flows for a long time. It’s just that these companies valuations today aren’t dependent on them having some massive business breakthrough in 10 or 20 years from now. The types of companies that Warren Buffett prefers, for example, have very predictable earnings power, like Coca Cola, American Express, and Apple, whose valuations are driven more by the billions of dollars of profits they’ll generate over the next few years than in the distant future.

[00:08:30] Shawn O’Malley: In that same vein, because there’s a lot more uncertainty around these companies assets and earnings, their value can be calculated using relatively lower discount rates, boosting estimates of intrinsic value that an investor gets by buying their shares. Miller’s approach has left more room for conducting intrinsic value assessments of companies that generate most of their value to shareholders in the distant future.

[00:08:52] Shawn O’Malley: Buying Amazon in 1999 as he did was not a bet on the company’s book retailing business at the time, but a multi decade bet on how its platform could be transformed into America’s go to site for online shopping. Intrinsic value becomes much harder to predict when you’re using higher discount rates and looking out decades into the future, but that hasn’t stopped Miller.

[00:09:13] Shawn O’Malley: My goal isn’t by any means to convince you that Bill Miller’s approach is better than anyone else’s, but rather to show you how different stock pickers have started from the same principles and gone in their own directions according to their unique expertise, interests, and personalities. Over the past two months, I’ve broken down how gurus like Benjamin Graham, Warren Buffett, and Charlie Munger approach investing.

[00:09:35] Shawn O’Malley: And if you aren’t familiar with their approaches and haven’t listened to those episodes, I’d encourage you to scroll a few episodes back in your podcast feed and check them out. Now I want to look more closely at Bill Miller’s approach and share with you his own words on how his style differs from others.

[00:09:50] Shawn O’Malley: The following is an excerpt from Bill Miller’s 2006 letter to clients of his fund. Value investing means really asking what the best values are and not assuming that because something looks expensive that it is or assuming that because a stock is down in price and trades at low multiples that it is a bargain.

[00:10:07] Shawn O’Malley: Sometimes growth is cheap and value expensive. The only question is not growth or value, but where is the best value? We construct portfolios by using factor diversification. We own a mix of companies whose fundamental valuation factors differ. We have high PE and low PE, high price to book and low price to book.

[00:10:27] Shawn O’Malley: Most investors tend to be relatively undiversified with respect to these valuation factors with traditional value investors clustered in low valuations and growth investors and high valuations. It was in the mid-1990s that we began to create portfolios that had greater factor diversification, which became our strength.

[00:10:44] Shawn O’Malley: We own low P.E. and we own high P.E., but we own them for the same reason. We think they are mispriced. We differ from many value investors in being willing to analyze stocks that look expensive to see if they really are. Most in fact are, but some are not. To the extent we get that right, we will benefit shareholders and clients.

[00:11:03] Shawn O’Malley: This approach has worked out pretty well for him. From 1991 to 2005, Miller’s Fund at Legg Mason beat the s and p 500 index 15 years in a row. His mentee, Michael Moison, has estimated that there is a one in 2.3 million probability of a professional investor going on such an incredible streak. While Miller has mentored stars like Moison, he was also a mentee at one point.

[00:11:27] Shawn O’Malley: In 1984, Miller visited Fidelity Investments to meet with Peter Lynch, author of the best-selling book, One Up on Wall Street, and manager of the successful Magellan Fund. After sharing his portfolio with Lynch, Lynch was impressed by its holdings, but had one question for Miller. What about Fannie Mae? As Miller has since recounted in interviews, he told Lynch that he couldn’t quite figure out Fannie Mae.

[00:11:48] Shawn O’Malley: Lynch’s response was simple. It’s my biggest holding. Want me to explain it to you? And so Lynch apparently goes ahead and breaks down the whole investment thesis for Miller, telling him that Fannie Mae is a bank without branch costs like its peers, since it’s this quasi-governmental organization based only in DC.

[00:12:04] Shawn O’Malley: That also means it can borrow money at just a hair above what the government itself borrows at, while having no depositors, eliminating the risk of bank runs. So it borrows money at lower rates than other banks, has a fraction of the overhead, and yet invests in the same things that most banks do, like mortgages.

[00:12:21] Shawn O’Malley: Miller tells the story that he still couldn’t wrap his head around the opportunity fully until he went back home and read through Fannie Mae’s filings for himself for four hours. The market was distracted by a handful of bad loans on its balance sheet, though Miller realized those loans would soon roll off its books.

[00:12:38] Shawn O’Malley: Those bad loans were blinding the market to an otherwise great opportunity. So he calls lunch back up and asks if it’s really true that Fannie Mae was trading at one times its projected earnings three years into the future and lunch tells him that that’s exactly right and he figured it out and Miller went on to 50x the money he invested in Fannie Mae.

[00:12:57] Shawn O’Malley: I just think it’s a really cool story. I’m not sure there is a lesson in it beyond taking the opportunity to learn from those who are more experienced than you. Whenever really you have a chance, I get goosebumps imagining what that conversation would have actually looked like. Two of the greatest investors in their generation casually talking shop over an opportunity that would turn into a 50 bagger.

[00:13:17] Shawn O’Malley: As I was researching Bill Miller, I went back to reread parts of one of my favorite books, Richer, Wiser, Happier by William Green. Green recalls traveling to visit Bill Miller in Baltimore in the days after 911 when financial markets were facing their worst week since the Great Depression. While Miller was a decade into what would ultimately become his unprecedented 15 year streak of beating the market, his fund was off some 40 percent at the time.

[00:13:41] Shawn O’Malley: The economy was internet bubble had popped and war was brewing in Afghanistan. Yet, as Green puts it, Miller was still relaxed and cheerful, coolly staking hundreds of millions of dollars into beating down stocks that subsequently soared. At one point, Green witnessed Miller take a phone call where an analyst informed him that one of their holdings, AES, had been cut in half after reporting terrible earnings, costing the portfolio 15 million.

[00:14:07] Shawn O’Malley: Miller’s response was to instantly double his bet. He assumed investors were irrationally overreacting to the recent dismal news. He told green quote, investing is a constant process of calculating the odds. It’s all probabilities. There is no certainty. William Green recounts that at this time, his peers ridiculed him for investing 500 million in the profitless retailer, Amazon.com, which many expected to go bust. Miller’s response was simply to say that Amazon had incredible economies of scale, which will eventually become apparent. And oh, how they did become apparent. As Green wrote at the time, quote, if he’s wrong, it will be the most public failure of his career. But if he’s right, and Miller still believes he is, the Amazon bet will rank as one of the greatest investment calls of all time.

[00:14:55] Shawn O’Malley: That investment has grown from the split adjusted price of 79 cents at the time. Green and Miller met in late 2001 to over $190 per share today. That is a 243 times return while Wall Street fretted over the company’s negative accounting profits each quarter. Miller kept his eye on the virtuous cycle that Bezos was building where.

[00:15:17] Shawn O’Malley: Amazon’s relentless focus on efficiency and cost reduction would generate economies of scale and user loyalty that enabled huge future free cash flows. In 2005, this vision became a bit clearer when Amazon unveiled its signature Amazon Prime service, which included free shipping for 79 a year. As you probably know, in the years since, the offerings included in that bundle have ballooned to include everything from free TV shows and movies to discounts at Whole Foods and Grubhub.

[00:15:47] Shawn O’Malley: Miller is considered to have seen this vision for Amazon earlier than anyone else on Wall Street and snatched up a 15 percent stake in the company. That stake would be reduced not at his own discretion, though, but because of panicked investors fleeing and withdrawing their money from Miller’s management, forcing him to sell Amazon shares to meet those redemptions.

[00:16:06] Shawn O’Malley: Just one year after taking over the Mason Legg Value Trust in 1990, Miller’s streak of 15 consecutive market beating years began. Miller remains humble about the streak. He credits the feat to quote, a large degree of luck and maybe some modicum of skill. And I define skill as actually just surviving in markets without blowing yourself up.

[00:16:28] Shawn O’Malley: Similar to how Warren Buffett with the help of Charlie Munger had his own philosophy change as a value investor by turning to higher quality companies that he could own Miller had his own shift in the early 1990s. He realized that truly great stocks would look astronomically expensive using normal valuation metrics like price to earnings or price to sales, yet their superior long term earnings potential could still render them bargains today.

[00:16:52] Shawn O’Malley: That insight led him to high growth names in the early days like Dell, AOL, and Amazon, years before the dot com bubble had really formed. Again, this flexibility stems from Miller’s refusal to classify the world into either growth or value stocks, no matter how popular that is to do. To understand these promising companies, Miller relied heavily on scenario analysis, working to envision what might happen to a business in a variety of different situations.

[00:17:18] Shawn O’Malley: Each scenario offers up a different valuation for the company, and the more scenarios in Miller’s analysis that converge on the same target price range, the higher confidence he has in that projected valuation. In a letter to his clients, Miller writes the following, Growth is an input into the calculation of value.

[00:17:36] Shawn O’Malley: Companies that grow are usually more valuable than companies that don’t. If a company earns below its cost of capital though, then the faster it grows, the less it’s worth. Companies that earn returns on capital above their cost of capital create value. Those that earn below it destroy value. What we try to do is find companies whose economic models support returns on capital above the cost of capital so that they create value at a rate greater than the mere addition to capital that occurs through the retention of earnings in the business.

[00:18:06] Shawn O’Malley: Such companies usually are recognized by the market and valued appropriately, but sometimes they are available at discounts to intrinsic value. These discounts can arise for many reasons. The most common are macroeconomic change, problems with the company or its industry, or the immaturity of the business.

[00:18:25] Shawn O’Malley: In each case, the long term economics of the business are obscured by factors or events that prove to be temporary. These temporary factors produce the mispricing’s that eventually lead to excess returns. If you’re not familiar with the term cost of capital, it’s a more advanced idea, but to summarize it briefly, a company’s cost of capital refers to its mix of debt and equity to finance its operations.

[00:18:46] Shawn O’Malley: It’s a single weighted number accounting for the cost of money raised from issuing debt or selling equity versus the split between debt and equity in the firm’s capital structure. If the cost of equity is 10 percent and the cost to borrow a debt is 5%, While the company’s capital structure has a 50/50 mix of debt and equity, then the cost of capital would be 7.5%, the weighted average of 5 and 10%. To make Miller’s point again, this company would create value for investors if it earns more than 7.5% per year above its cost of capital and destroys value for shareholders if it earns less than 7.5%. Miller’s strategy focuses on finding companies that earn more than their cost of capital and then waiting for opportunities to buy up shares at discounted prices.

[00:19:30] Shawn O’Malley: Sometimes that’s for a temporary reason like panic in markets after 911, and other times it’s because of a more lasting misunderstanding like Wall Street failing to see what Jeff Bezos was building in the late 90s and early 2000s. The extra wrinkle on top of earning above their cost of capital is that this must be done throughout an entire economic cycle.

[00:19:50] Shawn O’Malley: Miller isn’t particularly interested in cyclical companies that are very profitable in some periods and unprofitable in others. Miller is also not afraid to change his mind about companies and their prospects to earn returns above their cost of capital. For years, in the 1980s, Toys R Us was quite popular with other value investors due to its attractive appearances on paper, like having low price to earnings and low price to book ratios.

[00:20:15] Shawn O’Malley: Yet Miller stayed away after concluding the company’s low price was well deserved. That changed in the early 1990s when the toy company began fixing its underlying problems. Aging stores were given makeovers, while it stopped expanding into new sites and focused on making existing ones more profitable.

[00:20:32] Shawn O’Malley: It also recognized that it had managed its inventory inefficiently and the company could cut inventory by 500 million, providing it with massive amounts of cash to buy back stock with. Those changes were enough for Miller to rewrite his outlook on Toys R Us to earn returns above its cost of capital and he began investing in the company as the stock doubled over the next few years.

[00:20:54] Shawn O’Malley: Of course, Miller is not without losses. His fund was hammered in 2008 during the financial crisis after he bet big on Citi and AIG. A Wall Street Journal article from December 2008 on Bill Miller begins by saying, Bill Miller spent nearly two decades building his reputation as the Arrow’s greatest mutual fund manager.

[00:21:14] Shawn O’Malley: Then over the past year, he destroyed it. When concerns about the housing market and financial system began to infect the stock market, Miller used his familiar playbook of buying up beaten down names during times of excessive fear. Among his bets were Citi and an IG. Miller also snapped up shares in Wachovia, Bear Stearns and Freddie Mac.

[00:21:35] Shawn O’Malley: Bill Miller was early though, and rather than buying at the bottom, he loaded up before the next leg of the crash. On the Friday before Bear Stearns crashed over the weekend, Miller had bragged that he grabbed shares at just north of $30 per share with the stock down from a recent high of $154, as the Wall Street Journal puts it in that same article quote.

[00:21:56] Shawn O’Malley: After 15 years of placing savvy bets against the herd, Mr. Miller had been trampled by it. The lesson, at least in the case of names like Bear Stearns, was that stocks may look tantalizingly cheap, Though sometimes that’s for good reason. He’s quoted as saying that the thing I didn’t do from day one was properly assess the severity of this liquidity crisis from 2007 to 2008 between losses and redemptions, Miller’s value fund lost over 12 billion in assets under management.

[00:22:26] Shawn O’Malley: With a return that was roughly 20 percentage points worse than the S&P 500. As Legg Mason’s star talent, even though Miller oversaw a small fraction of Legg Mason’s 840 billion in assets at the time, its reputation was tied to Miller’s success, and thus the company’s stock fell 75 percent in 2008.

[00:22:45] Shawn O’Malley: Things got bleak for Miller. Clinging to a July 2008 statement from the former Treasury Secretary Hank Paulson that Freddie Mac would continue in its current form without being nationalized, Miller insisted on continuing to own Freddie Mac despite his colleagues arguing against it. Two months later, the stock would be completely wiped out in early September when the U.S. government announced a plan to nationalize the firm. At this point, the Wall Street Journal reports that Miller realized everything was just different this time around. The great financial crisis was so bad that the rules of the past needed to be thrown out. His playbook from previous financial episodes just wasn’t relevant anymore to a crisis of this magnitude.

[00:23:28] Shawn O’Malley: That same month, Miller would be fired from the board of Baltimore’s 2.2 billion Police and Fire Retirement Pension Fund. And for the first time, Miller had to fire some of his own staff. This all obviously takes quite a toll on a person. Miller reportedly gained 40 pounds during this period and would wake up throughout the night to get updates on his stocks.

[00:23:48] Shawn O’Malley: In an interview with the Baltimore Sun, Miller joked that quote, I regret I didn’t retire in 2006. Then I would have had this extraordinary record nobody else ever had. They would have thought I was a genius. By 2009, I was like an idiot. Blunders, during the great financial crisis, ultimately pushed Miller out of Legg Mason in 2012, spurring him to go solo.

[00:24:09] Shawn O’Malley: Under the solo approach, Miller has overseen two mutual funds, the Opportunity Trust and Miller Income Fund, as well as a hedge fund, all through his firm Miller Value Partners. The firm and funds are a fraction of the size of the kingdom he once ruled over, but they still managed billions of dollars.

[00:24:26] Shawn O’Malley: Miller has made a roaring comeback, beating the market again over the following years. In an interview with the publication Institutional Investor, Miller said it has been liberating to manage money on his own terms outside of the spotlight. The global financial crisis taught him to have more sensitivity to rare events that can inflict permanent losses of capital.

[00:24:46] Shawn O’Malley: If a stock drops 20%, it can recover. If a company goes bankrupt in a crisis or can only raise money to sustain itself by selling equity and massively diluting existing shareholders, then it’s just not really possible to bounce back in any meaningful way. Permanent losses are what really interrupt the compounding process beyond repair and Miller learned that lesson the hard way.

[00:25:06] Shawn O’Malley: Since his comeback, Miller has restored much of his image in the investment world, but he’s still made high profile mistakes. In 2016, after the troubled Canadian drug maker Valiant Pharmaceuticals fell 90%, Miller quite publicly argued that the company had become a good value, even as it faced SEC investigations and fired its CEO.

[00:25:26] Shawn O’Malley: The stock remained one of Miller’s largest holdings for years, despite the stock falling another 60 percent since late 2016. In terms of dealing with losses, Miller says they’re painful, but losses are also what we tend to learn from the most as investors, or at least have the opportunity to, if we’re open to it.

[00:25:43] Shawn O’Malley: Miller says he’s come to think of losses as tuition payments, which makes them an easier pill to swallow during rough times in markets. He also learned a lesson early in his career from the famed investor, Peter Lynch, who I mentioned earlier. Lynch told him about how investing is such an intellectually and financially rewarding career that it attracts an overabundance of intelligent people.

[00:26:05] Shawn O’Malley: Thus, the only way to beat them is to outwork them because no one is that much smarter than others in this business that they can outperform without also outworking their peers. As Lynch put it to him, quote, In this business, there are only two gears, overdrive and stop. Another trick of the trade for Miller and his profiling in the book richer, wiser, happier is that while still working hard He has learned to simplify his investment process.

[00:26:30] Shawn O’Malley: He says quote I’m trying to get rid of the unnecessary parts of what I used to do. I don’t build models anymore. It’s just stupid It doesn’t make any sense for every company There are a few key investment variables and the rest of the stuff is just noise His approach has come to focus on identifying and tracking the three or four critical issues that will ultimately drive the business’s future.

[00:26:52] Shawn O’Malley: The challenge in doing this comes from staying true to a simpler focus, especially in times of market turmoil or euphoria. He writes to his clients, quote, The problem is that real risk and perceived risk are two different things. And that’s where people get into trouble because they perceive risk to be high when prices are low and they perceive risk to be low when prices are high.

[00:27:14] Shawn O’Malley: Miller has long had a swing for the fences attitude. He once told another investing great, Chris Davis, that what matters is how much you’re right. If you’re wrong nine times out of 10 and your stocks go to zero, but the 10th one goes up 20 times, you’ll be just fine. During the savings and loan crisis in 1990 and 1991.

[00:27:32] Shawn O’Malley: Miller loaded up on American Express, Freddie Mac, and other struggling banks and brokerages until financial stocks made up more than 40 percent of his portfolio. Although he looked wrong at first, by 1996, these stocks had propelled him to a 38 percent annual gain as he began pivoting toward out of favor tech stocks.

[00:27:50] Shawn O’Malley: His good bets would more than make up for the bad. Between 1998 and 2002, 10 of his portfolio stocks lost more than 75 percent of their value, including Enron and WorldCom, which both went bankrupt, yet Miller’s overall winning streak was undeterred. His streak would end in 2006, though, when he missed out on the outperformance of energy stocks and, as we’ve discussed, things would get much worse in 2007 and 2008.

[00:28:15] Shawn O’Malley: Now, I want to pivot slightly and address the elephant in the room when it comes to Bill Miller. As I mentioned earlier, Miller has come to redefine value investing, and that’s not just because of his early stake in Amazon. The bigger red flag to many in the value investing community is Miller’s views on Bitcoin.

[00:28:32] Shawn O’Malley: In 2014, Miller revealed that he owned Bitcoin as a personal investment. You probably have your own opinions on Bitcoin already, but the primary issue value investors have with Bitcoin follows Warren Buffett’s lead, who generally isn’t interested in owning either gold or Bitcoin since they cannot be valued based on cash flows.

[00:28:50] Shawn O’Malley: In September 2015, Miller and his son published an article making the case for Bitcoin to value investors that has evidently aged quite well, at least in terms of returns. Bitcoin is up over 19, 000 percent since late 2015. I want to share some insights from that post. To begin, it starts by saying, quote, stylized views of value investing often invoke low accounting multiples, but we try to take a broader definition of value in our pursuit of assets trading at substantial discounts to their intrinsic value.

[00:29:21] Shawn O’Malley: Our approach is a probabilistic one, meaning that we try to think about various potential states of the future that could affect an asset’s value. We then determine what an asset could be worth under a handful of representative scenarios, multiply each scenario’s value by the probability we think it could occur, and sum up the values to get a central tendency of value.

[00:29:41] Shawn O’Malley: Our thought process on Bitcoin is a representative example of our probabilistic value approach, even though the asset may not hit the radar screens of more traditional value investors. I’ll link to the article in the show notes if you want to read it for yourself, but Miller goes on to break down the basics of Bitcoin, saying that while there are currently 14.6 million Bitcoin in circulation, the total supply limit is 21 million. A fixed supply and democratized authority prevent any one regime from altering the system to its own advantage, Indeed, every participant is also incentivized to maximize the value of Bitcoin. And I’ll just update that 14.6 million figure because now the outstanding supply of Bitcoin is closer to 19.7 million, leaving much less room for future inflation as we near that 21 million hard limit. Miller argues that as Bitcoin adoption grows, its aggregate value as a payment system will too. The grandest value, in Miller’s opinion at the time, would be for Bitcoin to achieve the same store of value status as gold.

[00:30:41] Shawn O’Malley: Should Bitcoin, with its even more finite status than gold and digital qualities, reach gold’s market value of 16 trillion, that implies that a single Bitcoin would be worth over 700,000. Or, at the time of Miller’s writing, when gold had a market cap of 6.4 trillion, then the implied price per Bitcoin would be 314,000.

[00:31:02] Shawn O’Malley: While remote, Miller argued that if there’s even a 0.25 percent probability of this happening, with a 25 percent chance of Bitcoin’s market value growing to match Amex, Visa, and MasterCard, the probability weighted value of Bitcoin would have been roughly 1,250 which is more than five times what Bitcoin traded at the time.

[00:31:22] Shawn O’Malley: Today, the odds are much higher that Bitcoin can usurp, or at least match, Gold’s claim to Bitcoin. being the preeminent safe haven asset. This is by no means an exact science, but the point is that your calculation of the odds and range of possibilities for Bitcoin’s future market value ultimately determines your intrinsic value calculations here.

[00:31:41] Shawn O’Malley: In June of 2024, just a few months ago, Bill Miller’s son penned an updated post on the Miller value partners website called why I’m still betting on Bitcoin. To quote his son in this updated article, he says, despite Bitcoin recently hitting new highs against every fiat currency, I believe Bitcoin today is still significantly undervalued and that the world is likely in the early stages of a secular shift around how humans think about capital and its governance.

[00:32:09] Shawn O’Malley: He adds, unlike anything we have seen before, Bitcoin is a true technological breakthrough as there now exists an effectively unalterable automated and transparent global ledger network with decentralized governance, enabling the transfer of property rights through time and space without human permission or the possibility of confiscation.

[00:32:29] Shawn O’Malley: The promise of Bitcoin is simple, namely that changes in someone’s purchasing power should not be controlled by an authority tied to the circumstances of one’s birth. In closing, he argues that Bitcoin is undervalued because it quote, still holds a fraction of 1 percent of the world’s addressable market for capital, despite its blockchain being far more accountable and secure than the best fiat monetary governance systems.

[00:32:53] Shawn O’Malley: So, the Miller family appears to remain quite bullish on Bitcoin, but that’s all I’ll say about it for now. Bitcoin is a topic some are tired of hearing about, but it’s hard to tell the story of Bill Miller without addressing it. In terms of what comes next for Bill, after a long career in 2022, Bloomberg reported that Bill Miller had begun turning over the reins to his successors.

[00:33:14] Shawn O’Malley: One of those successors is Samantha McLemore, who joined Miller after graduating college some 20 years ago and has taken over the 2 billion Miller Opportunity Trust, which was renamed just the Opportunity Trust under her lead, and his son, Bill Miller IV, leads the Miller Income Mutual Fund. In 2023, Miller Value Partners launched two ETFs, the Miller Value Partners Appreciation ETF, and the Miller Value Partners Leverage ETF.

[00:33:41] Shawn O’Malley: Miller’s career has been defined by long periods of highs with some incredibly low lows. Investment management is a consuming, soul crushing business at times, even for the best of the best. Just three years after setting one of the most impressive streaks of beating the market in financial history in 2008, Damning reports in the Wall Street Journal were burying his reputation.

[00:34:03] Shawn O’Malley: Yet resiliency and self-confidence would pull Miller through to restore his legacy. Miller could have just as easily quit after setting his 15 year market beating streak, and he could have quit again after leaving Legg Mason or during the fallout of the 2008 financial crisis. But he didn’t, and I think that boils down to Miller being a competitor.

[00:34:23] Shawn O’Malley: Competitors just don’t quit if they can still compete. They love the game and yes, many of the best investors do treat investing like one big game they’re competing to win. Critics of Miller’s say that his approach is not true value investing and that his returns are no more than a leveraged version of the market averages where he does really well in up years, but risk blowing up in crises, the 2008 period will forever be a stain on his record and people will try to dismiss him because of that or other bold predictions he’s made.

[00:34:54] Shawn O’Malley: But I think there’s still a ton to learn from him. You don’t beat the market every year for 15 years on accident. And I think that’s just as impressive to keep playing the game and bounce back to beating the market averages after everything he went through in 2008. I want to wrap things up today by sharing some of the wisdom from the last quarterly letter Bill Miller wrote to investors and Q3, 2021.

[00:35:15] Shawn O’Malley: For the first 10 years of his career, Miller alternated doing quarterly letters with his colleagues. And for the past 30 years, he wrote one every quarter. He says that from 2011 to 2021, when this letter is dated, his message has mostly been the same. We remain in a bull market that began in March 2009 and continues to this day.

[00:35:34] Shawn O’Malley: This bull market will eventually end when stocks get too expensive relative to bonds or when earnings decline. The other theme from his last decade of letters, he says, are that no one has privileged access to the future. So forecasting the market is a waste of time. It’s far more useful to try and understand what is happening now and give up on predicting what comes next.

[00:35:56] Shawn O’Malley: Since World War II, the U. S. stock market has gone up around 70 percent of the time on an annual basis because the economy is growing most of the time. Despite these favorable odds, most investors fixate on anticipating the 30 percent of the time that stocks decline. Yet most of the returns in stocks are concentrated in sharp bursts, beginning in periods of great pessimism or fear, as we saw during the 2020 pandemic decline.

[00:36:20] Shawn O’Malley: Time, not timing is what ultimately is key to building wealth in the stock market. Miller goes on to say, quote, when I am asked what I worry about in the market, the answer is usually nothing because everyone else in the market seems to spend an inordinate amount of time worrying. And so all of the relevant worries seem to be covered.

[00:36:38] Shawn O’Malley: My worries won’t have any impact except to distract from something much more useful, which is trying to make good long term investment decisions. The market’s worries at that time were defined by concerns over supply chain disruptions, rate hikes from the Federal Reserve, debt ceiling standoffs in Washington, and rising food and fuel prices.

[00:36:57] Shawn O’Malley: The one thing he said he’s confident in is that in 12 months, most of those worries will be replaced by a new set of worries, which has been broadly speaking true. Debt ceiling concerns have been sidelined, the supply chain has normalized, and the Fed is now closer to cutting than hiking rates. Today’s concerns center on overconcentration in the stock market among the Magnificent Seven, AI, the presidential election, and so on.

[00:37:22] Shawn O’Malley: As with any bull market, Miller concludes that there are pockets of overvaluation and undervaluation, and they will focus on finding great securities where the opportunities for long term excess returns appear greatest. My takeaway is that there are always opportunities somewhere in markets, and today’s biggest worries will soon be forgotten.

[00:37:40] Shawn O’Malley: Replaced by a new set of headline consuming news. Miller’s career is a testament to resilience, flexibility, and independent thought. No one can accuse him of being a so called closet indexer who charges high management fees while largely running a portfolio that matches major stock indexes. His portfolios are unique.

[00:37:59] Shawn O’Malley: As this is conviction and his biggest bets. He has been wrong plenty of times, but the rewards from being right in a few big ways have more than made up for expected mistakes.

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