Every year events prove that forecasting is futile and 2020 was no exception, says Bill Miller, chairman and chief investment officer of Miller Value Partners, in his latest quarterly letter to investors. It’s far better to understand what is going on today than to make guesses about the future, says Miller, who made his name at Legg Mason when his fund beat the S&P 500 for 15 years in a row from 1991 to 2005.
Today “we are in a bull market in stocks that began in March 2009 and that shows no sign of ending”. Valuations are high, but “not as high as they look”, given a supportive Federal Reserve and a strong recovery from coronavirus. Markets may even be underestimating the rebound’s likely strength. If growth beats hopes, the “rotation to value” should continue, which would be good news for “some groups that have trailed the market for years, such as banks and energy”. Added to that, inflation is likely to rise more sharply than expected “as the economy becomes more ‘normal’ in the second half”. Commodities and precious metals have already enjoyed significant gains, which should “continue in 2021”.
Miller also views ongoing loose monetary policy as good news for bitcoin, which he has been actively investing in since at least early 2017. He notes that several companies already hold some of their cash in bitcoin, a “relative trickle” that could “become a torrent” if inflation picks up. “Warren Buffett famously called bitcoin ‘rat poison’. He may well be right. Bitcoin could be rat poison, and the rat could be cash.”
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