Dividends and interview with Bill Miller

On You Tube there are many opportunities to learn and listening to interviews with proven winners in their respective industries is a good thing. Somewhere you will begin to understand how they see the world and if desired how you can train yourself to look in that direction. One of the people who have done a remarkably consistent returns as a portfolio manager is Bill Miller who now runs Miller Value Partners from Baltimore, Maryland.

As a Value Investor, Mr. Miller constantly does his homework to figure out how companies make money, can continue to make money and equally important why Wall Street is not valuing the companies the way the firm does.

Over the years, Bill Miller’s firm and him personally has owned Amazon and Facebook and the interviewer talked about Amazon.

The company bought Amazon at the IPO level and has bought and sold the shares. Mr. Miller likes Amazon and saw Amazon as having the same business model as Dell Computer did when it competed against IBM. If you really think about the first business they were in, the books, the business model of book selling is if the retailers do not sell books, they can send them back to the publishers or there is very little inventory risk. Amazon went into direct distribution with lower prices and evolved.

Now days, Amazon is very data driven and Mr. Miller believes the price could double in the next 3 years. The reason is Amazon can easily grow 25% a year for they are in markets with many players and Amazon has a higher return on capital than a competitor such as Wal-mart which has 14% return on capital.  If you look at the fields they are in they have $5 billion out of a $30 trillion market, that tends to mean there are growth possibilities.

Compare that to Facebook and Google – the market capital is close to a $1 trillion but the market is only $600 billion, which tends to mean growth is limited. Facebook has to monetarize its 2 billion plus users to continually to make money.

As a Value Investor you have to embrace complexity and controversies, because this is when stocks will be at their lowest as Wall Street tries to catch up to where you believe the companies will be in the future.

For years the airline companies did not make money, they all managed to lose money. It was a constant up and down investment. In the past 10 years or so, the consolidation of the airlines to 5 largest fleets with 90% of the traffic means airlines are actually making money. However, Wall Street is still valuing the airlines as they were, not as they are – when the multiples go up, the airline stocks should earn a good return.

Two other companies, Mr. Miller is looking at is Interxon Corp which is a biotech company however its high in 2015 was $60, now it is $ 8, but the possibilities are endless. As well as Valeant Pharm which went from a high of $300 to $27, the company has been reducing debt and reorganizing for a couple of years.

Linking to dividend paying companies, some dividend companies are value companies because Wall Street values different companies based on what they think the future will hold. The classic case is utilities which were done because interest rates were thought to be going up, when the fed said they are holding interest rates, utility prices went up and dividends were still paid. The key aspect of being a value investor is buying when stocks are out of favor or not in vogue at the moment, but the companies have to have a compelling reason to buy. Having patience allows the company’s multiple to go up over the years and capital gains are to be found. Similarly with dividend companies, with your dividends you can always buy companies that pay lower dividends and out of favor and you can be protected and have capital gains over the years.

There are more questions than answers, till the next time – to raising questions.




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