Bill Miller: Every Crisis Has Something Which Is ‘The Worst It’s Ever Been’

Jackson writes:

I love the Bill Miller section in [the 2008 edition of] your book. I was wondering if you know what he thinks of this financial crisis and whether he’s buying stocks, as you are.

I don’t just think Bill Miller is buying, I know so. He’s publicly called this one of the best buying opportunities in recent memory.

Coincidentally, I included comments from his January 17 conference call in last weekend’s note to Kelly Letter subscribers. Here are some timely excerpts from the call:

Excerpts From Bill Miller’s Jan. 17 Conference Call

These sorts of periods provide opportunities on a longer-term basis. In the last 20 years, we’ve had six financial panics similar to this one in order of magnitude. And it’s always funny to me how people’s memories change.

I was reading somebody who was talking about how, “This one is so bad because it’s not like the other ones. It’s not like the tech bubble which got over fairly quickly.” And I’m thinking, the tech bubble got over quickly? It was a three-year bear market — the worst since the Great Depression. But now that it’s over, and it was five years ago, it seems to have gotten over quickly.

And I think what you’ll see in the next six months to a year is this will be over — and then within the next couple of years, people will be talking about this being over quickly, as well. It’s never quickly when you’re in it. But it always seems quick after you’re out of it and things are going well.

What I learned from 1990 is it’s too late to sell stuff that’s down and get a little bit more defensive just because things are falling. As things fall, you’ve got to play more and more offense, not defense.

So the people that have a lot of financials, homebuilders, retail or consumer discretionary right now — those are the portfolios that it’s way too late to think about playing defense. Those portfolios should be positioned offensively to really benefit maximally when things get better — as they undoubtedly will.

I think that right now is the time to begin to get more aggressive…. The market and the psychology has officially entered a “panic zone” right now. And those panics typically last from as low as eight days — that was how long the panic lasted to the bottom of the market in 1990 — to about a month or two at the very outside.

So you’re looking at somewhere between the next week and two months to give you one of the best buying opportunities we’ve seen since July of ’02.

Shareholder Question: The comment that we’re getting from clients is: “This time is different. It’s worse than the prior crises.” How do you respond to that?

Miller: Well, every time is somewhat different. But to say it’s worse…I mean, the ’02 collapse was such that you had companies like AES, which was $75 in 1999, trade at 75 cents in 2002. So you had junk bond spreads blown out to the highest level in history. I think what you have in every crisis like this is something which is “the worst it’s ever been” — but that doesn’t mean that the crisis is the worst there’s ever been. The reason you have a crisis is in something, it’s the worst there’s ever been.

In this one, the damage to big financials’ balance sheets — the losses they are taking — is the worst it’s been since the Great Depression. And in some companies, it’s the worst it’s been in history — like Bear Stearns, or Merrill Lynch. But that doesn’t mean the crisis is the worst it’s ever been.

In fact, if you talk to any of the big industrial companies, like the fertilizer companies, they’re telling you things are great. The unemployment rate is still 5% — it’s not 8% or 10% — and we still have economic growth.

So we haven’t even gone into a recession yet — at least we don’t have one officially. And interest rates are down with the 10-year sitting at 370. And the market is not that far off its all-time high, right? We’re 10% to 15% maximally below that.

So I have a hard time seeing how this is such a catastrophe…

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