Interesting story in Barron's...
For subscribers: interactive.wsj.com
A couple extracts...
APRIL 9, 2001
Underpriced Market
Legg Mason's vaunted money manager sees an oversupply of
gloom
An Interview With William Miller - As the world of sport turned its
attention last week to the greens at Augusta National for the 65th Masters
professional golf tournament, we turned to one of the great modern masters of
the investing game. Miller's prowess at picking stocks and his ability to
consistently outperform his peers is as pretty and predictable as azaleas
blooming in Georgia in the springtime. Unimpeded by a pool of assets that has
grown to $23 billion in funds he runs for financial services firm Legg Mason,
and unfettered by any slavishness to investing conventions, Miller last year
bested the market benchmark by a wide margin for an unimaginable 10th
straight time. This year is no different. Comfortably drawing as much on
studies of epistemology and philosophy in selecting stocks as from the
wisdom of fellow money makers Warren Buffett and Peter Lynch, Miller has
broadened the dimensions of portfolio management and enriched his clients
and the investment community in the process. At this critical juncture in the
market, please read on to learn why he's upbeat on the economy, busy buying
technology and telecommunications, and as bullish as ever on Amazon.com.
...
Now, as always, the key question in the markets is
what is discounted? What is in the process of being discounted is the current
slowdown, earnings problems, excess capacity and inventories, all of the
things that you read about everyday in the paper. What is not discounted is a
recovery. The overall market is underpriced by 15% to 20%, and I think
there are a lot of bargains out there.
...
The capacity-utilization
question and the argument that this is a different environment because there is
overcapacity ignores one of the critical issues when there is overcapacity in an
industry, which is, How quickly is underlying demand growing? If the paper
industry, or the steel industry, the aluminum industry, or the copper industry
builds a lot of capacity and the economy slows, well, those industries'
underlying growth rate is only a couple of percent, and it takes a long time to
work that capacity off. In telecom, for example, the underlying growth rate of
data or broadband services is very, very rapid so it is going to take a lot less
time to work that off than the market currently believes. |
