It has been quite a ride for Bill Miller. When he joined Legg Mason four decades ago, he says, “my net worth was negative, and I was making $39,000 a year.” The former philosophy student and military intelligence officer rose inexorably from obscurity to stardom, famously beating the S&P 500 index for 15 years running as manager of Legg Mason Value Trust. And then it all fell apart.
During the 2008-09 global financial crisis, Miller made a disastrous contrarian bet on toxic stocks like Bear Stearns and AIG. Value Trust lost 55% in 2008, and his assets under management plummeted from about $77 billion to $800 million. Many wrote him off, but Miller has proved them spectacularly wrong.
At his own firm, Miller Value Partners, he is generating dazzling returns once again. As of March 31, the Miller Opportunity Trust (ticker: LMNOX) ranked in the top 1% of Morningstar’s Mid-Cap Blend category over one, three, five, and 10 years. From the Covid-induced market low of March 23, 2020, through March 31, 2021, the fund returned 201.7%, versus 78.5% for the S&P 500.
But those numbers don’t capture the full extent of Miller’s rise from the ashes. In my new book, Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life, Miller reveals that he supercharged his personal bet on Amazon.com (AMZN) during the financial crisis, loading up on call options as the stock plunged. As a result, he thinks he’s now the single largest individual shareholder of Amazon “whose last name isn’t Bezos”—other than MacKenzie Scott, who dropped the name after her divorce from company founder Jeff Bezos.
In 2020, Miller told me that Amazon had ballooned to 83% of his personal portfolio. Last week, in an interview for Barron’s, Miller, who has owned Amazon for more than two decades, said his investment in Bitcoin has produced such a windfall that it’s now worth even more than his Amazon stake: “I started buying around $200 to $300 per Bitcoin, and my average cost is around $500.” The price of Bitcoin is now about $53,000.
Miller’s bets on Amazon and Bitcoin have had a startling impact on his fortune. When asked if it’s fair to say he’s now a billionaire, he replied, “Yes, that’s fair.” An edited version of our conversation follows.
Barron’s: How does the investment environment look right now?
Bill Miller: People often say there’s lots of uncertainty, but when was there ever certainty in the markets, the economy, or the future? I’m just trying to understand the present. The novelist V.S. Naipaul said, “I believe that the present, accurately seized, foretells the future.” So what’s going on now? The economy is accelerating. Inflation isn’t a problem. The Fed is going to keep interest rates pegged at zero for the indefinite future. There’s some concern, rightly, about valuations in various spots of the market. But earnings are going to grow rapidly this year and next, if things don’t change. I believe the 40-year bond bull market ended on March 23 of last year, and we’re in a bear market for bonds. But we can still find lots of stocks that are not just attractive, but also very cheap, and we don’t have to play in ones that are superexpensive.
Where do the risks lie?
There’s probably at least a 50/50 chance that things go right. But the risk of inflation is higher than it’s been in a long time—and the money supply ballooning at a 25% rate certainly has to go somewhere, and it will go partly into real economic prices. There’s a move afoot to get a higher minimum wage, which is all to the good. That could lead to profit margins being under some pressure in the next year or two. Corporate taxes going back to 28% is hardly a problem; that’s not going to stifle any activity. So I think the path of least resistance for the stock market is still higher.
The thing I’m more worried about than anything else is that it gets too high. If there’s a runaway market, it’s going to be tougher. If we have a 5% or 10% correction—or more—because of some external event, that’s good. Prices will be more attractive.
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Have you sold any of your personal stake in Amazon?
No. I still think Amazon is a double in three years, so why would I sell? First of all, it’s not expensive. It’s trading right in the middle of its historical range, based on price to gross profits and enterprise value to Ebitda [earnings before interest, taxes, depreciation, and amortization]. But the digitization of the world accelerated in 2020, and Amazon’s revenue growth almost doubled. Right now, if Amazon Web Services were a separate, publicly traded company, it would be worth $500 billion, and Amazon’s got a $1.6 trillion market cap. In a couple of years, the advertising business could be worth at least $500 billion, and AWS could be $1 trillion. That’s almost Amazon’s total market cap. So, the retail business is free. Then they’ve got a big business-to-business operation that’s worth $25 billion, up from almost nothing five years ago. And that’s profitable; likewise, the private-label business.
You’ve also got the optionality of the fulfillment business: They’re building airplanes and have ordered 100,000 electric delivery vans. So, they’ll have a network that’s at least as extensive as FedEx [FDX] and UPS [UPS]. Amazon is building capacity because they want to be able to handle all of their own volume. But then they’re going to build excess capacity, which they can sell. Obviously, their economics will become very different for their internal stuff, because all of that cost will be spread over a much wider base. And that business isn’t even in the price yet.
How much would you invest now if you were buying Amazon for the first time?
I’d probably put 20% or 30% of my net worth in it. There’s very little risk. If the antitrust laws change and the mood of the country changes and they go after Amazon and split it up, great! Then it’s worth a lot more.
You’ve made a killing on Bitcoin. What’s the rationale for owning it?
Bitcoin is a decentralized, permissionless, peer-to-peer network of computers that’s permanent and unhackable. When you buy a Bitcoin, you’re buying a slot on that database, and almost all of those slots have been allocated. There’s only going to be 21 million Bitcoins in the world, and 18.5 million have already been mined and circulated. So we’ve got 2.5 million to go. It’s Economics 101. The supply grew 2.5% last year; it’s growing 2% this year. Is demand growing faster or slower than 2%?
Well, Morgan Stanley is going to make Bitcoin available to their clients. Goldman Sachs is going to make it available to their clients. Every big bank will do so. There’s Bitcoin exchange-traded funds in Canada and Brazil, and about five of them have filed in the U.S. There’s an estimated 47 million millionaires in the world; if each of them wanted to own one Bitcoin, they couldn’t—there are only 21 million of them. And how many hundreds of billions of dollars of cash is sitting on company balance sheets? MicroStrategy [MSTR] famously put all of its cash in Bitcoin. Tesla [TSLA] put cash in Bitcoin. But the adoption rounds to zero. It’s that asymmetry between supply and demand that is leading to what’s going on.
Does the world need Bitcoin?
In my view, Bitcoin is the solution to a problem that’s bedeviled economies since there were economies, which is government monopoly over the money supply and the banking systems, leading to serial defaults, confiscation with nationalization, inflation, and 25% money growth even in the U.S. Bitcoin protects you from all of those things.
How do you value Bitcoin?
Many of the larger owners of Bitcoin say the best way to think about it is as digital gold. Gold is analog, Bitcoin is digital. It’s far superior to gold as a store of value, not just because it’s gone up 200% a year for 10 years, but because you can’t flee your country with millions of dollars worth of gold, as it’s bulky and hard to divide, whereas you can send Bitcoin anywhere in a fraction of a second at very low cost, and it’s almost infinitely divisible. The best estimates I’ve seen are that there’s about $10 trillion of gold value in the world, some in jewelry, some in central banks, some in things like ETFs. Bitcoin’s market cap is around $1.1 trillion. I’m highly confident that Bitcoin can go up 10 times under certain reasonably assumed conditions—namely, it can be as valuable as gold.
Just because something’s been around for thousands of years doesn’t mean it can’t be superseded by something else. We used to ride horses, and then we got cars. What will make people change their mind about Bitcoin? When everybody else adds it to their portfolios. They’ll love it at $500,000. That’s just the way stuff is. You go back to Amazon. They hated it all the way up—until, finally, it reached some level of institutionalization, smart people owning it, and Warren Buffett saying that Bezos is a business genius.
Is there an undervalued stock that you like?
I like General Motors [GM]. It used to be part of the problem, and now it’s part of the solution. It was a massive polluter and couldn’t solve its own problems. Now, that’s reversed. You’re at the cusp of the conversion of all its new cars from the internal combustion engine to electrical vehicles. But GM’s valuation has not reversed. On a sum-of-the-parts basis, you can easily come up with 50% more than the current price, and you can pretty easily come up with 100% more. They’re at eight times next year’s earnings in a market that’s 20 or so times earnings. GM is certainly not expensive, given the optionality. And people are excited about anything that combats climate change.
There’s a massive opportunity because the auto industry is being completely revamped. The market acts like Tesla is going to hoover up all the profits. But they’re all coming out with electric vehicles and accelerating research and development, and they’ve got global distribution. It’s going to be hard for Tesla to maintain a differentiated platform. I recently saw the new Cadillac and, darn, that’s a good looking vehicle. It’s going to be lightning fast, and it’s changing the image of GM.
Thanks, Bill.
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