Bill Miller

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Bill Miller

Few investors have melded the growth and value schools of investing better than Bill Miller. Some value-investing enthusiasts disagree that Miller is one of their own. While his practice of valuing stocks on the underlying businesses is acceptable, Miller has made some questionable "value" plays. Some famous examples include America Online (which later became part of Time Warner [TWX] and then Verizon), Dell Computer (DELL), and Amazon.com (AMZN). Though none were of the traditional "value" mold, all these stocks made substantial price gains after Miller bought them.

What he sees that others don’t

Critics characterize Miller as a growth investor in a value investor’s clothing, but a look into his thought process reveals Miller’s knack for seeing value where others don’t.

His method

Like any value investor, Miller looks for businesses with strong competitive advantages that are trading below his estimates of the firms’ worth. He uses a discounted cash-flow model to determine intrinsic value. Unlike many value managers, however, Miller is willing to make fairly optimistic assumptions about growth, and he doesn’t shy away from owning companies in traditional growth sectors. In his fund, pricey Internet stocks rub elbows with bargain-priced financials and turnaround plays. Miller will also let favored names run, allowing top positions to soak up a large percentage of assets. This portfolio concentration may fly in the face of Modern Portfolio Theory, but Miller isn’t one to accept the conventional wisdom.

One example of Miller’s value/growth mix was his purchase of Google (GOOG), a rapidly growing Internet search engine. While many investors at the time shied away from this stock due to valuation concerns, Miller scooped up shares during its IPO. The stock doubled quickly after the company went public. This purchase was done in classic Bill Miller fashion—investing in a wildly profitable company that few investors understand or appreciate.