Before the real estate and stock market declines started in 2007, Bill Miller was known for one major accomplishment. As the portfolio manager of the Legg Mason Value Trust, Miller had beaten the S&P 500 index for 15 consecutive years from 1991 to 2005. However, over the next few years, Miller's ill-timed bets on real estate stocks, among others, led to a couple of years of significant annual declines. In fact, during the first half of 2008, Miller's fund was down nearly 30% and the number got worse by year end.

IN PICTURES: 20 Tools For Building Up Your Portfolio

Down But Not Out
While Miller will admit he underestimated the effect that credit and housing crisis would have on equity prices, so did 99% of other intelligent investors in 2008. This is certainly not an excuse as Miller will readily admit. Still, Miller's long-term record should carry more weight than a couple of years of terrible numbers. Especially now, since Miller has the experience and lessons of 2008 from which to learn and benefit. And in 2009, on the heels of an impressive market rally, Miller's fund was up over 40%. To be fair, Miller's 2009 numbers have more ground to cover to make up for 2008 losses, but if anyone can do it, it's Miller.

Quality Rules
Looking at where Miller is positioning his portfolio in 2010, there is a heavy weighting towards large-cap quality and technology. His biggest holding is an 8% position in AES (NYSE:AES), an $8 billion global utility company. AES provides electricity all over the world. The shares trade for $12 and command a P/E of 12. Utilities companies are viewed as the ultimate safe play during any economic scenario. It's likely this view along with an attractive price appeals to Miller. (For more, check out Trust In Utilities.)

Miller's other large holdings are not any under-the-rock stocks. He owns large positions in insurers Aflac (NYSE:AFL) and Aetna (NYSE:AET), both of which trade at attractive earnings multiples and will likely grow as the economy grows. Miller has recently allocated 3% of his capital to tech behemoth IBM (NYSE: IBM). According to Miller, "IBM has record earnings, trades at 12 times this years results, buys back shares every year, and has grown its dividend 25% per year the last five years."

You Decide
Last year's market rally was more favorable for smaller, lesser-quality names than it was for the large, quality names. Miller, along with many other investment pros, clearly feels the best values today are in strongest franchises that continue to churn out cash. (For related reading, check out The Greatest Investors Tutorial.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Fundamental Analysis

    10 Major Companies Tied to the Apple Supply Chain

    Apple has one of the best supply-chain models. Here are some of the top businesses involved, and the benefits and challenges for all.
  2. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  4. Mutual Funds & ETFs

    5 Mutual Funds that Hold Berkshire Hathaway Stock

    Discover the top five mutual funds most heavily weighted with Berkshire Hathaway stock, and the percentage of their assets dedicated to BRK.
  5. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  6. Mutual Funds & ETFs

    Comparing ETFs Vs. Mutual Funds For Tax Efficiency

    Explore a comparison of mutual funds and exchange-traded funds, or ETFs, and learn what makes ETFs a significantly more tax-efficient investment.
  7. Mutual Funds & ETFs

    4 Mutual Funds that Hold Tesla Stock

    Obtain information on the four mutual funds that have significant allocations to Tesla Motors, Inc. in their major portfolio holdings.
  8. Mutual Funds & ETFs

    4 Mutual Funds that Hold Apple Stock

    Discover mutual funds offering the most substantial percentage of holdings in Apple, Inc. stock that investors can use to get significant exposure to Apple.
  9. Mutual Funds & ETFs

    Top 5 Precious Metals Mutual Funds

    Obtain information and analysis of some of the top-rated and most popular mutual funds that offer investors exposure to the precious metals industry.
  10. Insurance

    Whole or Term Life Insurance: Which Is Better?

    Learn the difference between term life insurance and whole life insurance. Understand when it is beneficial to buy each type of life insurance.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Series 6

    A securities license entitling the holder to register as a limited ...
  5. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
RELATED FAQS
  1. Can mutual funds outperform savings accounts?

    A mutual fund can – and should – outperform a savings account. In most cases, it should not even be a close race. Savings ... Read Full Answer >>
  2. Can mutual funds invest in private companies?

    Mutual funds can invest in private companies, which may come as a surprise to many investors. It is rare for a fund to have ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!