Articles: Comparing Bill Miller and Ken Heebner; Jim Rogers Interview; Ambac Insiders Buy Shares

Some random articles... Cam Hui's Comparison of Bill Miller and Ken Heebner... Jim Rogers interview (nothing new)... MBIA and Ambac insiders buy throughout the turmoil...

Cam Hui's Comparison of Bill Miller and Ken Heebner

Cam Hui does a good job in his blog entry comparing Bill Miller to Ken Heebner. Cam Hui is mostly a technical analyst so it's not my cup of tea but his analysis does capture what is seperating the losers and winners within the superinvestor club. Read the full article at SeekingAlpha or at his own blog.

The investment styles between the two are totally different. Bill Miller is more of a value investor whereas Ken Heebner is more into macro trends and growth investing. My impression is that Heebner is sort of a contrarian Jim Rogers. Bill Miller on the other hand is a long-term investor who doesn't pay attention to macro trends. Heebner also has higher turnover but that comes with growth and macro investing.

The big difference in performance comes down to what I have discussed in the past: relative weights of financials and energy. Heebner is heavily overweight energy whereas Miller isn't. And Miller is overweight financials whereas Heebner is not. That pretty much sumps up the situation. Those who avoided energy and were overweight in financials, consumer discretionary, or real estate (such as Bill Miller, Eddie Lampert, Martin Whitman) have done very poorly. Anyone that was overweight energy or materials has done exceptionally well (Ken Heebner, Bruce Berkowitz, Jim Rogers, Marc Faber).

The contrarian moves being made now by some will likely determine the next few years in my opinion. People who are overloading on financials (eg. Citigroup, Fannie Mae, MBIA, etc) or consumer discretionary (eg. Home Depot, Sears, etc) or real estate (or related) (eg. Pulte, Toll Brothers, USG, Owens Corning, etc) are setting themselves up for a massive gain in the future. Or massive losses. Companies like Citigroup, Sears, USG, and Fannie Mae are all down around 50% in the last year and they can just as easily drop another 50%.

I'm a big fan of Bill Miller but don't know much about Ken Heebner (and don't think he is my style). But if you are someone who is into sector rotation, macro investing, or growth investing, something like Ken Heebner looks like a good investor to pay attention to (the best are still Jim Rogers and Marc Faber but Heebner is more public and you can probably get way more information on him and his fund).

Jim Rogers Interview

There is a short interview with Jim Rogers at Bloomberg. Nothing new for those who have followed Jim Rogers (skip this if you don't have time).

Quick recap: he still hates the Federal Reserve and almost everyone on Wall Street. He still thinks commodities have a long way to go, including oil. He is buying select airlines (check out my prior post covering his Barron's interview if you want ideas), Chinese agricultural companies, and agricultural commodities in general. He is short Citigroup, Fannie Mae, and all the brokers via a short of the brokers ETF.

The only new information that I gathered is that he thinks financials can drop a lot more. He was saying that financials dropped to $8 per share (it's not clear exactly what he was referring to) in the last downcycle in early 90's and the same thing can happen.

Ambac and MBIA Insiders Buy Shares

Not that this really means much (insider actions provide almost no signal from what I understand--you can look at any of the monolines, banks, or even a company like Sears to see what I mean) but MBIA and Ambac management bought shares on the open market this week. I'm glad to see management buying shares throughout this turmoil.

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9 Response to Articles: Comparing Bill Miller and Ken Heebner; Jim Rogers Interview; Ambac Insiders Buy Shares

June 6, 2008 at 6:18 PM

I think you could be wrong on both counts. Neither financials nor energy would do well in a deflationary depression scenario. in which case, you should go long....guess what...CASH. That's right. The most unloved, universally hated asset class right now is the U.S. Dollar.

There are two ways to play this, one brain-dead easy way, and one devilishly hard way. Easy way is to be US Treasury bills. Hard way is to short everything asset class out there -- stocks, bonds, commodities, foreign currencies -- in essence going long U.S. dollar.

The reason people will scoff at this is because the scenario is too horrible to contemplate, and therefore is deemed to be "remote" or "impossible". But then again, when ABK used to trade in the 90s last year, if I told you ABK could trade at $2.35 now, you would have scoffed.

May I also suggest that calling Bill Miller a value investor is an insult to true value investors. A more accurate description of Miller would be "buy-the-dipper".

If you think I hold a grudge against Miller, you would be absolutely positvely correct. The reason is that the average-down mentality betrays a kind of arrogance and recklessness that is unseemly for someone skimming 1.70% every year of investor dollars. All for what? 10 years of underperformance against the S&P index.


June 6, 2008 at 7:19 PM

Synchro, I didn't realize you were in the deflationary depression camp. You are correct in saying that 'cash is king' in such a scenario. During the Great Depression and the Japanese deflationary bust, cash and safe bonds outperformed all other assets.

But, you have to be able to justify the severe deflation scenario. Even if you are superbearish, there are a lot of other scenarios that can unfold, such as inflationary bust (eg. 70's).

I'm in the dinflation camp for the near term (long term I think inflation will tick up) so I'm partial to some of your views. However, your scenario is highly unlikely to occur. We have learned a lot from the past and central banks, along with average person on the street (like me :) ) will try not to let it happen. The fact that the currency is not backed by gold also allows some flexibility (there were far more deflationary busts back in the 1700's and 1800's because of hard currencies).

I'm not saying your scenario can't happen (it can happen since credit busts are usually deflationary); all I'm saying is that I place a very small probability on it. If you do go with that scenario, you better be able to justify how that small probability is actually a much larger probability.


Regarding Bill Miller, you clearly seemed to have suffered and hence are clearly biased. As I and others have pointed out, Miller's poor performance can be traced to the last few years. His 10 yr record also looks shaky because the stock market peaked in 2000. If you go further out, you'll see why I respect him.

As for you claiming that he isn't a value investor, I don't know how you can seriously say that. If you ever go back and see how he bought Dell at something like a P/E ratio of 8(?) back in the early 90's, you would realize why he is a value investor. No one wanted to touch tech stocks in the early to mid 90's.

Although Miller has a fault in averaging down too much, it has worked well for him. If you ignore the last 2 years, I really cannot say that averaging down was a bad strategy for him. For every poor low-ball purchase (like Kodak), there is a superior pick (like Amazon).

Furthermore, it's not like as if he is averaging down into everything. If that were the case, he would have bough commodity stocks 10 years ago.

Let's make a friendly, virtual, bet. I think it's only fitting if we compare Bill Millers performance to yours :) I say he will beat you over the next 5 years. Let's start measuring from the start of this year. My guess: he will underperform until possibly next year, and then it'll be all over for you. Your maximum of 100% gain on shorting is no match for a stock that can double, triple, or quadruple.

June 6, 2008 at 11:17 PM

I make no claim to be a superior stockpicker to Bill Miller. Never invested with him.

My point about all this: investing is probably one of the hardest profession there is. It is so unique as a profession compared to others (dentist, doctor, accountant, lawyers) in that you don't really know for a long time what is truly skill and what is luck. What happened to Bill Miller is to demonstrate yet again that even more than a decade of outperformance is no proof that he is better than average.

My beef with Miller has to do with his lack of a method to assess himself that HE COULD BE WRONG. His method (or lack of risk control) betrays an outsized ego that in this game he will eventually get his face ripped off. The market isn't called the Great Humiliator for nothing.

The great tragedy wrt to the current bursting credit bubble is that it is easily foreseeablle -- if people bothered to not just read, but actually study history.

The faith in the Fed to prevent a deflationary depression is misplaced. There is NO EVIDENCE the Fed has the ability to perform such a feat. There is an appalling general lack of appreciation to distinguing between credit inflation and currency inflation.

June 7, 2008 at 11:01 AM

SYNCHRO: "The faith in the Fed to prevent a deflationary depression is misplaced. There is NO EVIDENCE the Fed has the ability to perform such a feat. "

I think it all depends on how strong of a "depression" you are referring to. The Federal Reserve can't prevent, say, a collapse in overvalued assets (residential real estate right now) but it can cushion the blow. The FedRes seemed to have no impact back in the 1930's because it was using a hard currency and the government was passing anti-free-market policies that made things worse (eg. tariffs). For instance, how bad is the Japanese deflation? Was that a mild success in preventing a total collapse or was it a complete failure in your eyes? JCB, as well as the Japanese government, made all sorts of mistakes (tightening throughout the credit contraction in the early 90's for example) but they somehow moderated the deflationary collapse. Average Japanese citizen didn't fall into poverty but overvalued assets (particularly commercial real estate and stocks) did collapse.

Nothing is quite the same. Even if we get a depression of some sort, it won't be anything like the 1920's. Secondly, it's easy to argue that someone could have seen a credit bust but I doubt even you were confident with it. If you were, did you put all your money on your short positions a few years ago? Just like how the dot-com/TMT bubble was "predictable" but no one really knew when it would burst or how badly it would be. People who bought the popular growth stocks like Dell, Intel, Wal-mart, Pfizer, etc in the mid 90's still were ok after the collapse; if you bought one of those hot IPOs the story may have been different ;)

The way I see things you will get a collapse in prices for the overvalued assets (residential real estate for example). But it's hard for me to see a collapse in, say, stock prices. Stocks are not overvalued. This latter part automatically rules out the 1920's (when stocks were clearly overvalued) and Japan in 1990 (stocks were also overvalued). If stock prices do not collapse, business activity should be ok.

The other big thing that will determine the fate of everything has to do with whether the housing problems are limited to housing or not. My impression is that you think it is a wide-raning credit bubble. As for me, it's not clear. Maybe I'm biased with my holding in Ambac (and spending too much time looking at housing) but the rest of the economy (including other areas involving debt) seems to be immune. For instance, auto sales are declining (even for the Japanese companies) but it seems to be driven by the general economic slowdown rather than due to auto credit issues (eg. can't get auto loans).

I think one key thing that separates bottom-up investors from top-down is that they don't put much weight on the macro trends. I actually pay some attention to macro (as you can see by the topics I cover, particularly from The Economist) but most value investors don't. Take a look at Warren Buffett. He has repeatedly said (in fact at least 3 times in the last few months) that he wouldn't buy or sell based on what may or may not happen with the economy, Federal Reserve actions, credit contraction, and so forth. You, on the other hand, seem to be top-down (that's fine; successful investors like Jim Rogers and Marc Faber are too). What you perceive as obvious isn't so obvious to bottom-up investors or to me.

Finally, it's kind of funny that we are having this conversation because we are on total opposite sides (although I'm close to you in expecting some deflationary damage)... Monoline shareholders like me must seem like the biggest fools. If what you believe to be a big wide-ranging credit bust is actually unfolding, these are the absolute worst companies to own. Monolines are heavily leveraged to every credit asset out there (including credit card loans, student loans, auto loans, and who knows what else is contained int those CDOs?)... The real interesting thing for a bear (credit bear ;) ) like you must be, not the small monolines (even at the peak, their market cap was below $15 billion), but what happens to companies like AIG. A lot of the credit growth was due to the rating agencies giving high ratings, and insurers backing some of these assets. It would be unthinkable to see a (formerly) $150 billion company collapse. I don't think it will happen (I disagree wtih your credit bust views) but interesting to think about...

June 7, 2008 at 11:03 AM

Before I mislead anyone about AIG, it is not a monoline (i.e. diversified into many areas) but it still has sizable exposure to credit instruments. That's the main reason its stock price is down almost 50% in the last year.

June 7, 2008 at 11:26 AM

What the ultrabears are also missing is the potential political effect of a major deflationary depression. I strongly doubt political systems in most of the world have more then a snowball's chance in hell of surviving Great Depression mk. II. What good is cash or gold if the government confiscates it and what good are treasuries if the government bankrupts itself paying for the war? Guns and ammo along with a plot of land suitable for subsistence farming in the remotest possible location seem the only good investment in such a scenaro.

June 7, 2008 at 12:57 PM

Warran Buffet, because of who he is and his position/standing in the world, would not dare speak the truth. Perhaps one clue to what he is really thinking is the vast cash hoard he holds. To me, it sounds like Warren is very "long" cash, and have been for quite a long time. Yet we continue to hear inane advice from the pundits telling people to be fully invest in the stock market "for the long run".

June 7, 2008 at 7:22 PM

You are right in saying that Warren Buffett does couch is opinions somewhat (for example, he doesn't make strong political comments even though he is attuned to politics (his father was a hard-core right-wing Republican; he is a liberal Democrat; and Charlie Munger is opinionated and politically incorrect :) ). But I seriously do not think Buffett is "lying" or "misleading" with his comments regarding investing.

The fact of the matter is that, if you are a value investor, or if you are a contrarian investor, you invest through every economic condition. We do not pack up and go home because we can't win the game when it rains! If there is a credit bust, so be it; if there is a recession, that's fine. We just need to make sure that we don't get blown up by investing in the wrong thing. Who knows if Ambac is the worst investment out there but it probably isn't as risky for those who bought at a lower price (like ContrarianDutch) than all the hot commodities right now. Sure, oil companies may do well but oil prices or economic growth has to be strong. In contrast, value investors (like Buffett) or contrarian-wannabes (like me) invest regardless of what happens. Benjamin Graham was investing throughout the post-Depression years (and WWII). Well, I think I would be doing the same too.

However, it should be kept in mind that the the skills that contrarians like me are trying to learn and develop, or what value investors do, are different from buying and holding "the market".

If you are overweight cash, I think that's fine. If I had a large portfolio (mine is small), I would probably hold cash. But given that my portfolio is small, and the fact that I have positive savings to invest every month (however small), I am fully invested.

I actually think that we may have entered a bear market (in late 2007). But--and this is what will make it difficult for bears and bulls--I see a high likelihood of a sideways bear market. Things may rally but then fall back down, and so forth. In fact, in Canadian dollar terms (I'm in Canada :) ), the US market has not hit its peak from 2000--so it has literally been in a sideways market for the last 8 years.

For contrarians or deep-value investors, a bear market is meaningless. We are looking at stuff that is beaten-down. The biggest risk for contrarians is catching a falling knife (or falling into a value trap).

June 7, 2008 at 9:22 PM

I am a growth investor that follows a three-tier approach to the market. Macro - is this a positive return environment; Asset - what assets will do well in the environment; and Position management - sizing, set stops, trailing stops, adding with momentum, etc. (My macro model pointed to a 'negative return environment' about Jan 7/08 and I am net flat on my amounts invested.)

I was short Ambac and MBIA for a long time and did ok, recently covering my last MBI 7.5 puts. I also bought ABK on the "ratings day" because the downgrade at this point is only to AA and there will be some sifting to do to find out what the long term book value will be with stressed losses in structured credit. The housing mess in the US with inflation in food and energy will cause a recession... it is happening in slow motion. This is going to be a terrible bust and in the next year the value investors will have a great time. (I may put some money with Mr. Chou or Alan Jacobs at Sprott.)

As an aside, do you read up on what Michael Irwin is doing at

Keep up the blog. I like it.

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