Sunday, October 07, 2007

“Fund Big Slams Streak-Man!!!!!!” The Headline That Didn’t Make Headlines

Wick is short Eastman Kodak (EK), which he says isn't gaining traction in the printer business and continues to be hurt by the digital-photography revolution. Wick notes that Legg Mason Value Trust (LMVTX) holds 7.5% of Kodak's shares, while Legg Mason as a whole owns close to 20%.

At Value Trust Bill Miller's legendary streak beating the S&P 500 has been replaced by extended under-performance. Wick thinks that Miller eventually will go. When he does, the Kodak stake could follow, pressuring the shares. [Emphasis added.]

—Eric Savitz, Barron’s “Technology Trader” Column, 10/8/07

The “Wick” quoted above is Paul Wick, veteran Seligman technology fund manager who, while widely quoted in the popular press, is no mere talking head.

Paul is a familiar face at technology conferences around the globe, doing the homework that has kept him at the head of the pack over many years’ worth of investing in leading edge companies, as well as betting against them when he sees fit.

That's right: unlike most public figures in this business, Wick not only talks up stocks he likes and explains why he likes them; he is not afraid to talk about stocks he doesn’t like, and why he doesn’t like them—a highly unpopular thing to do in a world that would rather shoot the messenger than listen to what the messenger is actually saying.

The 'Bill Miller' referenced above is, obviously, Bill Miller, the star Legg Mason money manager whose famous, enviable “streak” of S&P-beating years ended in 2006.

Like Wick, Miller is widely quoted in the popular press, though less so nowadays than during his “streak” years, when he was often asked about, and shared, his erudite views on everything from where oil really comes from to why his fund is the single largest shareholder of one of Wick’s favorite shorts—Eastman Kodak.

Regarding the latter subject, Miller says Kodak is doing a fine job in its “transformation into a digital company” and possesses “the best portfolio of products” in the field.

Regarding the former subject—where oil comes from—Miller subscribes to the view of Thomas Gold, author of the impressive-sounding “abiogenic” theory of petroleum. The “abiogenic” theory holds, as Miller has written, “that oil and gas are not fossil fuels” at all, but were “created deep inside the earth, and other planetary bodies, and gradually rise toward the surface.”

Being the opposite of the “biogenic” view that oil and gas result from the slow cooking of a finite amount of prehistoric organic matter via millions of years worth of compression into hydrocarbons as solid as coal and as amorphous as natural gas, abiogenics holds that the supply of oil and gas from whatever created it is “virtually inexhaustible.”

NotMakingThisUp will give Bill Miller his due any day, on any topic, particularly his notion that limiting “value” investing to currently cheap stocks ignores many faster growing, high return-on-capital businesses with a better-than-random chance of proving to be excellent “value” investments years hence. That is a view for which he took some heat during his 'streak' years, although his investors didn't mind the end results.

However, having started in this business touring oil shale deposits in Colorado and offshore drilling rigs on the Grand Banks, it's always astonishing to hear of anybody who still pays attention to a crackpot theory long ago dismissed by scientists studying the field of oil and gas, not to mention oilmen looking for the stuff.

After all, if oil and gas really do come from some mysterious self-plenishing spring deep inside the earth and not from ancient reservoirs of compressed organic matter cooked into burnable, transportable fuel, then somebody ought to tell Brazil they shouldn’t be able to make all that ethanol out of sugar cane.

Nevertheless, both Wick and Miller have had extraordinary careers in this business, and both have opinions and investment ideas worth following.

Which is why, when Eric Savitz, who is no slouch himself as a reporter, quotes one saying he thinks the other “will eventually go”—well, that’s a headline if ever there was one.

Now, it's understandable why Barron’s didn’t overplay the matter. The mutual fund world is, at least on the surface, a genteel playground where portfolio managers let their performance do their public talking.

If Barron’s had wanted to sell a few extra copies—except in the general vicinity of the Legg Mason offices—they surely would have slapped Savitz’s quote on the front page beneath some kind of cute graphic, possibly showing gunslingers circling one another warily, with a headline along the lines of:

Shootout At The Mutual Fund Corral!

Of course, if NotMakingThisUp’s official Newspaper of Record—the New York Post—had picked up the story, it would have gone with a juicier headline in a “Pearl Harbor Attacked”-sized font…something like:

Fund Big to ‘Streak-Man’: “You’re Outta Here!”

And if our personal favorite publication, though one not generally attuned to the nuances of portfolio managers and their latest investment ideas—The Onion—had covered it, the headline would be somewhat more twisted.


Wick Says Miller “to Go”…Miller says Wick “Probably Not Organic Matter”

We, on the other hand, ain’t taking sides.

Jeff Matthews
I Am Not Making This Up

© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


GovtMule said...

Jeff - what is your take on this article.

Peak Oil & Russia

Richard said...

Is the presence of methane in the atmosphere of Jupiter explained by dinosaurs and biologic materials decomposing on Jupiter? Where did all the methane hydrates offshore, which will eventually be a source of power (or global warming!) on earth come from?

Russian geologists are believers in abiogenic methane. Read some of Thomas Gold’s work before you form an attitude on the source of oil. Do you think it’s impossible that the people who got college credits for “Rocks for Jocks” could be wrong?

matt said...

The abiogenic theory of oil creation is completely nuts, but Brazil makes ethanol out of sugar cane, not oil.

whydibuy said...

Gotta give miller his due though. He sticks his neck out with a concentrated portfolio and lives or dies with his picks. Hes not like a Ken fisher or David Dreman who hold so many stocks that they're really nothing more than quasi S&P 500 funds. And beating the S&P for 16 years is no small feat. The one that stands out to me was his big position in AMZN. I thought it was crazy but it worked out great for him. Hes better than me. During the summer liquidity crisis, he was quoted as saying " these events are not unique to the market. They wash through the system every so often and are part of the market". Apparently he was right. It was one of those things that come and go and the market marches on.

stocksystm said...

Miller's record is now demonstrated to be most probably a fluke; much like a freak occurrence of flipping a coin 10 times and all 10 times coming up heads. He became extraordinarily wealthy by being a extremely fortunate recipient of chance. The flips are going the other way now though. Too bad for investors who jumped on his bandwagon a couple of years ago.

Jeff Matthews said...

Richard, name a single oil company geologist who subscribes to Gold's theory, or employs it when looking for oil and gas.

Not to say you can't get hyrdocarbon from inorganic material, which explains your methane Jupiter.

But find yourself a drilling core, talk to a geologist about what it holds, and test Gold's theory yourself.

W. P. Thatcher said...

I admire Miller's contrarian philosophy, but I honestly can't understand why he's stayed away form energy & other commodities for so long. He shouldn't buy them just because they're going up, but I seriously hope that for his shareholders' sakes he'll revisit this stance. He's a man who prides himself on having a sterling and curious intellect. It would be intellectually dishonest for him not to re-examine this mistake.

Richard said...


For now, the question of whether methane is abiogenic or not doesn’t matter to US oilmen. They don’t care, and they were taught that oil is a biogenic product. They look for rock formations that trap gas and oil that comes from below. If methane isn’t trapped in rock, it just goes into the atmosphere. The deep source methane that Gold describes is 6 km. below the surface; a very hostile environment to drill in. This drilling is in its infancy, and wasn’t practical when Gold’s theories were published in the 1980’s.

The Russians have a different tradition. Russian sources view Gold as a plagiarist of their work, primarily that of Nikolai Kudryavtsev. Take a look at - – and draw your own conclusions. It seems that Russian geologists don’t speak to US geologists.

And while you’re at it, look at methane hydrates. There’s one hell of a lot of them buried in the sea. It’s one reason that the Koreans and Japanese were so worked up over who owns the little island of Dokdo between them; there’s 600 million tons of methane hydrates in the surrounding water. Nobody has figured out how to mine these deposits, but the deposits dwarf the amount of natural gas discovered thus far.

Jeff Matthews said...

Richard, I looked at that site, as you suggested. No offense, but it reads like the lunatic ramblings of a deraged mind.

Gold's theory is fine, if you want to believe in theories. It just doesn't help you find oil and gas.

Anonymous said...

"Miller says Kodak...possesses 'the best portfolio of products' in the field."

You know, after skimming through EK's latest 2Q07 report, I can't understand why, if EK has such great products, the quarterly sales for its digital consumer group (DCG) declined 10% from 2Q06?

The only good thing about EK is that the company is focusing efforts on strengthening its balance sheet by reducing long term secured debt and recognizing long-lived asset impairments. Also, reductions in quarterly SG&A expenses doesn't hurt gross margins either. Yet, you can only "cut so much fat" before you start "cutting to the bone", if you catch my drift.

IMHO, I think the only way Miller would "leave" EK is if he was wrong, really wrong, about EK's fundamentals in bringing DCG to profitability without reducing SG&A and increasing product sales worldwide.

I could be wrong, though.

Slash said...

For the longest time the only stock Miller would talk about was WaMu.. as his largest position but he never said if he was putting new money in it or not. The only service any TV reporter can do when interviewing anyone is to ask that manager what names they are buying/selling on that day. Everyday managers have to make decisions to put new money to work or rearrange there holdings and nothing shows more conviction then putting money to work.