Bill Miller Archives: Sources of Edge

During his professional investing career, Bill Miller, CFA, wrote commentaries on the markets, often explaining his own unique perspective. In our "From the Archives" series, we present key concepts from these letters. This piece is an excerpt from a commentary published on October 21, 2006.

Our friends at 13D Research, led by Kirill Sokolov, recently met with portfolio managers to discuss their current views on the markets. The question was: What do you think about, and what is it that no one else is thinking about? The dozen or so investors who gathered, some of whom were well-known heads of hedge funds and mutual funds, quickly arrived at this formula:

All we could do was present some views that we believe are not being taken into account by the market, and if that is the case, it could be an opportunity to get some super-provers.

The key question in the market is: what exactly is being discounted? What does the market expect, what is being reflected in the price, and how do my expectations differ? All expectations contain a temporary horizon that must be considered in judgment.

These days, such temporary horizons feel rather short, creating "just-in-time" markets and markets based on data that extrapolates new numbers as if they were the beginning of a new trend. Wasn't it just a few months ago that oil was up $20 a barrel? And who would have imagined that in April, when it had risen 15% annualized, the Reuters/Jefferies Commodity Research Bureau would fall 5% annualized by October?

Another picture of this is that the market has become more and more information-effectively, at high speed, including new prices, and at prices such that one has little opportunity to trade effectively in response to what comes on the tape. By the time one manages to release a company's earnings report, the "wisdom of the crowd" has usually revised the price to reflect all the new information it contains, and these changes are usually pretty good, at least in the short term.

The evaluation includes the prediction of the change of Keynes, which is called "lon g-term expectation." For that purpose, as the time axis becomes longer, it tries to narrow the cone of uncertainty that inevitably spreads. Market prices reflect the weighted average expected value of a securities in future returns, and these expected values ​​have low probability events, especially those that can have a significant impact (for example, the nucleus of Israel). It should also include Iran's blockage of the Iran Strait for attacking the facility. This is the case when Iran attacks its nuclear facilities by blocking the Strait of Holms. This is thought to be an impossible event).

Since what happens more than what happens, if we can identify the part that is very different from the forecasts that are incorporated into the market price, the return after adjusting the return after adjusting the risks that can be obtained through the passive investment program. You can create a portfolio that can be realized.

To do so, keep in mind the basic principle of business, "competition only when there is a competitive advantage." Warren Buffett preaches to stay within his ability. However, according to social psychologists, we tend to overcertain when evaluating our abilities, so it is very likely that it is wrong, even if we think that it is advantageous.

There are three types of competitive advantage in the market: information advantage, analytical advantage, and behavioral advantage. Information advantage is when you know important things that others do not know. This is the easiest and most difficult to find. Securities regulatory authorities have been dealing with the disclosure of all important information, imposing rules such as FD, and imposing heavy penalties for insider transactions.

Analysis advantage is born by processing and weighting the information generally disclosed in a different way than others. The market seems to be evaluated as a permanent feature of the business model, such as Barns and Amplifier Noble, a bookstore, as well as Amazon's current singl e-digit operating margin. 。 This is a mistake, and we believe that Amazon margins will soon rise to two digits and in some cases two digits. If our analysis is correct, we can get enormous benefits from Amazon. com shares. < SPAN> Evaluation includes the prediction of what Keynes calls "lon g-term expectations". For that purpose, as the time axis becomes longer, it tries to narrow the cone of uncertainty that inevitably spreads. Market prices reflect the weighted average expected value of a securities in future returns, and these expected values ​​have low probability events, especially those that can have a significant impact (for example, the nucleus of Israel). It should also include Iran's blockage of the Iran Strait for attacking the facility. This is the case when Iran attacks its nuclear facilities by blocking the Strait of Holms. This is thought to be an impossible event).

Since what happens more than what happens, if we can identify the part that is very different from the forecasts that are incorporated into the market price, the return after adjusting the return after adjusting the risks that can be obtained through the passive investment program. You can create a portfolio that can be realized.

To do so, keep in mind the basic principle of business, "competition only when there is a competitive advantage." Warren Buffett preaches to stay within his ability. However, according to social psychologists, we tend to overcertain when evaluating our abilities, so it is very likely that it is wrong, even if we think that it is advantageous.

There are three types of competitive advantage in the market: information advantage, analytical advantage, and behavioral advantage. Information advantage is when you know important things that others do not know. This is the easiest and most difficult to find. Securities regulatory authorities have been dealing with the disclosure of all important information, imposing rules such as FD, and imposing heavy penalties for insider transactions.

Analysis advantage is born by processing and weighting the information generally disclosed in a different way than others. The market seems to be evaluated as a permanent feature of the business model, such as Barns and Amplifier Noble, a bookstore, as well as Amazon's current singl e-digit operating margin. 。 This is a mistake, and we believe that Amazon margins will soon rise to two digits and in some cases two digits. If our analysis is correct, we can get enormous profits from Amazon. com stocks. The evaluation includes the prediction of the change of Keynes, which is called "lon g-term expectation." For that purpose, as the time axis becomes longer, it tries to narrow the cone of uncertainty that inevitably spreads. Market prices reflect the weighted average expected value of a securities in future returns, and these expected values ​​have low probability events, especially those that can have a significant impact (for example, the nucleus of Israel). It should also include Iran's blockage of the Iran Strait for attacking the facility. This is the case when Iran attacks its nuclear facilities by blocking the Strait of Holms. This is thought to be an impossible event).

Since what happens more than what happens, if we can identify the part that is very different from the forecasts that are incorporated into the market price, the return after adjusting the return after adjusting the risks that can be obtained through the passive investment program. You can create a portfolio that can be realized.

To do so, keep in mind the basic principle of business, "competing only when there is a competitive advantage." Warren Buffett preaches to stay within his ability. However, according to social psychologists, we tend to overcertain when evaluating our abilities, so it is very likely that it is wrong, even if we think that it is advantageous.

There are three types of competitive advantage in the market: information advantage, analytical advantage, and behavioral advantage. Information advantage is when you know important things that others do not know. This is the easiest and most difficult to find. Securities regulatory authorities have been dealing with the disclosure of all important information, imposing rules such as FD, and imposing heavy penalties for insider transactions.

Analysis advantage is born by processing and weighting the information generally disclosed in a different way than others. The market seems to be evaluated as a permanent feature of the business model, such as Barns and Amplifier Noble, a bookstore, as well as Amazon's current singl e-digit operating margin. 。 This is a mistake, and we believe that Amazon margins will soon rise to two digits and in some cases two digits. If our analysis is correct, we can get enormous benefits from Amazon. com shares.

Excellent qualities are more exciting as a result. The field of behavioral money is still developing, but it has already given a profit to meaningful investment processes. The most pleased thing is that these results, the fastest, are immutable, and cannot be freezed by arbitrage. This is due to the fact that huge groups have a large conclusion on how they are likely to start sel f-production in a specific living environment. On the other hand, a huge number of people can teach, help, cognitive psychology, and neuronaci, and cannot change their psychology (don't be patient). 。 Meanwhile, investors in the Journal Laboratory do not start considering experts in their light of social psychology network (www. socialpsychology. org), and still has time.

This is a meeting that Cyril planned with the excuse that no one is thinking. In fact, I suggested that no one was thinking. On the contrary, we all work with a variety of beliefs, but we don't have enough time to discuss their beliefs. Why do you have that belief, how did you get it, what is the truth, what affirms that belief, and how other beliefs are and how? What is tied to, in fact, what needs to be organized to change that belief, and for example, beyond that.

The conviction is a field that has not been fully studied before, and it is only recently that it has brought new interest in itself. The fact that I "resumed" was the result of the fact that the attention to Vera and the discussions on it were very exciting at the end of the 19th century. Behind this was a coup d'etat caused by Darwin. British mathematician British Clifford wrote a famous essay entitled "Ethics of Family", but he basically said, "Always, anybody, anybody has no evidence. It is wrong to believe. " He was a wool of Volya, who was an objection to the religion of the philosopher William James, which was filled with the realization of religion, although there was no evidence in fact. Do you remember a small engine?

Increasing the interest in beliefs is the opportunity to encounter construction of constructive Muslim beliefs that influenced our security on September 11, and the consequences of OU's existence in Iraq at the end of the army. Because there was. These creators, such as Sam Harris, Dan Denette, and Richard Dokins, have revived moral debate on the 1870s Clifford's view.