Bill Miller Case Study

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Taylor Scott 2/4/13 Bill Miller Value Trust Case As of 2005, the mutual fund Value Trust, run by Bill Miller, had beaten the mutual fund market for more than 14 years. This was a record in the industry and doubled any previous performance from other managers. Value Trust has surpassed the S&P 500 over the previous 14 years by an average total return of 3.67%, while also earning a 5 star rating by Morningstar. This is impressive by any standard because the mutual fund industry as a whole usually underperforms the market because of the inclusion of management fees. Miller’s performance and consistency defies experts in the industry because it goes against theories such as the Efficient Market Hypothesis (EMH). The problem that this case presents is whether or not it makes sense for an investor to buy shares of the Value Trust mutual fund. To find the answer to that question, we need to take a look at Bill Miller’s stock pricing model, the efficient market hypothesis, and the mutual fund industry overall. The efficient market hypothesis states that market is the most efficient mechanism at determining value as it has a greater ability to collect and respond to information than any other mechanism. A conclusion of this approach is to buy and hold a large number of securities such as an index fund that mirrors the S&P 500. Things get difficult if everyone were to embrace this approach and stopped analyzing stocks closely in order to “beat the market”, market efficiency would be somewhat diminished. The market is inherently dependent on investors analyzing and disseminating information in order to be its efficient self. Governance could be another issue in market efficiency. It could prohibit the free flow of information, or it could ensure that the information reaches everyone fairly. Striking the perfect balance is difficult but should be the

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