Robert....How's it going?...Did you think we'd see AOL go up this fast?....This is great, but then AOL is a great company....I wonder where those "shorts" are now?....Here's an article on AOL and where it may be in 10 years...Notice Miller's, of Legg Mason, comment about AOL becoming a world-wide natural monopoly.........
Regards, George
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LEGG MASON MANAGER DOESN'T SWING FOR FENCES BUT CLEARS THEM
By RICHARD C. TEN WOLDE
Dow Jones Newswires
NEW YORK -- Among mutual-fund managers, William Miller is the undisputed Sultan of Stocks.
Miller, captain of the $5.2 billion Legg Mason Value Trust and avid baseball fan, is the mutual-fund world's answer to Ken Griffey Jr., the Seattle Mariners' all-star center fielder. Both are top producers and smart defensive players in their respective league.
When at the plate in the 1990s, Griffey has hit for more total bases than anyone in the majors. And Miller from Legg Mason's headquarters in Baltimore's Inner Harbor has swatted higher gains with the Value Trust portfolio than any rival.
Dating back to the beginning of 1991, Miller is the only manager of a diversified fund to beat the Standard & Poor's 500-stock index each year, according to Lipper Analytical Services Inc., Summit, N.J. And this year, he's crushing the index. Through Nov. 5, the Value Trust portfolio is 10 percentage points ahead of the S&P.
Looking a little further back into his career, Miller has proved himself a consistent performer. In the last ten years, he's surpassed 84% of his growth-fund peers by averaging a 19.59% gain each year and has slipped past the S&P's 18.91% annualized gain.
Miller has built the portfolio and his reputation by purchasing companies that have fallen out of favor with investors but retain, in his estimation, a favorable outlook.
He looks for companies with low price-to-earnings, price-to-cash and price-to-book ratios, but those are only variables and not the end to his analysis, he said during an interview in New York. Miller is proud of his and his team's ability to pull critical details from company executives about their strategies.
Being a buy-and-hold player gives Miller an edge over competitors because it reinforces relationships with companies, he said. He moves in and out of only about seven positions a year, delivering a sluggish turnover rate of 11%.
Not only is he willing to hold a company long after it has stopped being a value stock, he occasionally adds to positions that appear to be trading at premiums if further growth is in his forecast.
His early and large bets on technology and financial stocks propelled the fund's returns for the last 10 years. He's remained loyal to companies - such as America Online Inc. (AOL) when it was depressed because of service trouble in 1996 - while others were bailing out.
"We're investors and not speculators," Miller said. "We're interested in change in growth and value of companies, whereas speculators are interested in price (changes)."
AOL is the fund's second-largest holding, ranking just behind Dell Computer (DELL), according to Chicago fund tracker Morningstar Inc. Even at its lofty price of 139 a share, AOL is attractive because it is the dominant player among Internet service providers, fund manager Miller said.
"It's one of the few cases where you could have a global natural monopoly, where the nature of the business is such that one business is going to dominate," he said.
The company, he added, could grow to four times its present size in the next 10 years.
During September and October's selloff, Miller was in the fray, adding to holdings and collecting new ones. After allowing the cash position to swell to 9% of assets last summer, he went on a $600 million shopping spree, trimming the portfolio's cash weighting to about 2.5%.
"Finding value isn't as easy as it was four weeks ago," he said, "but it's easier than it was four months ago."
He recently added to positions in favorite financials, including Citigroup Inc. (CCI) and Chase Manhattan Corp. (CMB), as well as in Starwood Hotels & Resorts (HOT).
Despite recent turmoil in the ranks at Citigroup, which brought the resignation of President James Dimon, who was once viewed as the heir apparent, Miller said the merger between Travelers Group and Citibank contains all the elements for healthy growth.
Amid the market volatility, he also bought WPP Group PLC (WPPGY), the world's largest advertising holding company. Miller said he likes the firm's free cash flow and market share and views the ad industry as relatively stable.
His calls aren't always right though. Contrary to popular opinion last year, Miller was buying makers of peripheral memory systems for computers - such as Storage Technology Inc. (STK) and Seagate Technology Inc. (SEG). Although the group hasn't spun around, he's sticking to his bet. He still holds Seagate and added to Storage Tech during the dip in the market.
Because of strong demand for personal computers, he figures there should be increasing demand for this group.
He doesn't seem to mind waiting. It's paid off before.
- Richard C. ten Wolde; 201-938-2123; richard.tenwolde@cor.dowjones.com
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