I.

Introduction
Bill Miller and Value Trust. William H. (Bill) Miller III leads his mutual fund, Value
Trust, and beats the Standard & Poors 500 Index (S&P 500) continuously for 14 years. On the
period of 15 years, 1990 to 2005, this $11.2-billion mutual funds average annual total return
surpassed S&P 500s by 3.67% per year.
Mutual fund functions on affording individual investor the opportunity to diversify
portfolio without having sizable amount of capital, mutual fund also provides an individual
investor a professional expertise that necessary to beat the market with higher return.
II.

Problem Definitions

The efficient capital markets theory states that security prices fully reflect all available
information, which means most money managers cannot beat a buy and hold policy on a risk
adjusted basis, and the case of Bill Miller and Value Trust which he continuously beat the market
for 14 years will be considered as a pure luck. However, Value Trust beat S&P 500 14 years in
row with its $11.2 billion worth, which relatively small value of holding value in the market, and
having an average annual return of 14.6% which 3.67% higher than S&P 500s 10.93%average
annual return, from 1990 to 2004, by having investing policy that against the efficient capital
market theory.
If the efficient market theory is right, why Value Trust can beat the market so many time?
Luck is not enough to explain the outperformed by Value Trust, and it clearly shows something
necessary had been done out of the buy and hold strategy to beat the market. And is not that the
growth of the mutual funds asset in the stock market is proving the inefficient of the market?

III.

Recommendation or Course of Action

By 2005, The U. S has the largest mutual-fund market with a mutual-fund asset that is
worth approximately around $8.1 trillion.
IV.

What might explain the Fund's performance?

Obviously, as a mutual fund usually has more investing fund than a normal investor
which means large amount of shares related to mutual funds transaction. The huge purchasing
power by mutual funds drives the stock prices rises according the demand and supply theory. The
other side, the successful performance by mutual funds brings people confidence to their
expertise and willing to follow their portfolio, and again the high amount of demand rises up the
price of a stock. By providing several choice of investing position such as aggressive growth,
equity income, and so on are helping more investors to invest on their need thru mutual funds.
V.

What in Miller's strategy might explain performance?

Miller reminds to be wary of valuation illusions and states two historical valuation
illusions: Wal-Mart stores and Microsoft. Two stocks that had a high P/E ratio and a high price
when they went public, prove that thinking out of the box and do analysis are necessary to be
able to see a potential of a stock. Taking risks is also needed in order to beat the market. There is
no sense to receiving risk premium without facing additional risks.
VI.

How easy will it be to sustain Miller's performance into the future?

It is not that hard to sustain Millers performance into the future, since it will be more
people interested to his achievement and putting money in his mutual fund that allowed him to
purchase stocks in larger amount and rises the stock prices.

VII.

Discuss the performance with regard to the theory of Capital Market

Efficiency

A good performance which aiming to beat the market must not come from the theory of
Capital Market Efficiency since it states all of the effort and analysis are worthless because the
stock price is fully related to the information already. And by the fact, examples of beating the
market are showing the possibility of getting higher return than the market continuously.
VIII. How would you define excellent performance?
In the case of investing, I will define an excellent performance according the average
return that I got compare to market average return such as S&P 500s average return. And
continuously beating the market will be the best proofs the excellent performance is not all about
luck.