Chit Chat Stocks - Bill Miller: The Bitcoin and Amazon Billionaire

Episode Date: January 28, 2026

On this episode of Chit Chat Stocks, Brett and Ryan dive into the career of investing legend Bill Miller. We discuss: (00:00) Introduction (03:40) Bill Miller's Unique Investment Style and Background (07:51) Case Study 1: Dell Computer (18:28) Case Study 2: The Great Financial Crisis and Major Missteps (30:22) Case Study 3: Amazon (47:27) Case study 4: Bitcoin (53:59) Lessons from Bill Miller's Investment Philosophy ***************************************************** Sign up for our stock research service, Emerging Moats: emergingmoats.com  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome into the Chit Chat Stocks podcast, a podcast to help you find your next great investment. My name is Brett Schaefer. I'm joined by my co-host, Ryan Henderson, to take another stab at our super investor series. I think it's our first one of 2026. A little behind the curtain, we plan to do, I think, nine more of these, 10 total in 2026 to close out the series.

and we'll finalize that by the end of this year. We are studying Bill Miller today, who I would describe as an idiosyncratic investor. He has been right in the heart of the biggest trends for better or worse in markets over the past few decades. We'll be studying the investor's background briefly while using four case studies in Dell Computer, The Great Financial Crisis, Amazon,

and for us, maybe a little unfortunately, bitcoin one of the biggest winners of the bitcoin investment uh theme of the last decade and we're going to use those case studies to show how this fund manager likes to invest it's very unique style a lot different then we're going to look at his recent portfolio and the portfolio of at this point run by his son bill miller the fourth i gotta say if i had a a fourth last name that'd be quite funny. You feel like you really have a legacy. Not even the third, it's the fourth. And then by the end of this episode, we're going to decide what we have learned from the legendary investor, any inspiration to invest like him, or any cautionary tales from some of

his mistakes. Before we begin, let me tease the upcoming schedule. Ryan can maybe add in here if he wants we have an interview coming up on sezzle a buy now pay later company that you know the name sounds a bit goofy but it's actually doing quite well we have of course the power hours every week and we have a upcoming research report episode from ryan uh and what is that company going to be constellation not software brands i know maybe that's a letdown for some people but it is sort of a consumer i guess you could call it a consumer staple they own modelo corona pacifico a lot of the mexican uh beer brands here in the united states is alcohol dead well the volume growth of mexican beers in the united states would say otherwise a little

tease there but uh you you wouldn't know it just by listening to popular media and reading articles about alcohol consumption yeah no one's going to drink alcohol ever again we're going to make sure that doesn't happen uh but we also have interviews hopefully coming up maybe on constellation software we got some other stuff in the queue it's going to be a really fun q1 but before we begin this episode let me ask any listener please give us a review on either spotify or apple podcast if you listen to this free ad-supported podcast, this is the best way to show your support as it helps with the local algorithms to boost the show's metrics. And if you think someone you know would enjoy the show, please share it with them. Hit that copy button, send it over to them.

And with that, Ryan, let's get to Bill Miller. He's got an interesting background. I'll probably keep this fairly short here, and then we can lead into his start as a portfolio manager at Legg Mason back in the early 90s. It's not necessarily standard, but it's something you might expect from an intelligent person born in 1950. He was raised in North Carolina in Florida, graduated high school in 1968. Early adulthood was interesting. He served as an intelligence officer in the military from 1972 to 1975 in West Germany. I'm sure that was kind of an out of the frying pan and into the fire as a young person. Then he enrolled as a PhD in philosophy at Johns Hopkins. And although he didn't graduate or get his doctorate before becoming a full,

I guess, doctor of philosophy, he went to pursue his career in finance. However, he says the school left a lasting impression on him and his life. So he made a huge $75 million donation to the college, which is a ginormous donation for this type of school. And as an aside, friends say miller does not live in extreme luxury outside of his one yacht purchase i always want to say no matter how frugal the billionaire investor is they or they're giving away all their money they still they like the yacht that's the one thing that always makes it through sure but home too yeah that's true that's true i'm sure they're not living in a tiny thousand square foot place But his friend says he still wears simple shoes from Nordstrom to work and that he cares more

about, quote, winning in markets than the money. This seems like a real big trend among investors that we follow. They're focused on being the best, not just making money. The money will follow. 1981, to pick up back on the timeline, Miller joined Legg Mason. I don't know if Legg Mason is around today. It was a giant mutual fund company as a securities analyst. And he quickly rose through the ranks. Long story short, he was elevated to lead the Lake Mason Valley Trust in 1991. And from 1991-2005, he put up 15 straight years of beating the S&P 500 index. While clearly impressive, Miller himself says he had some calendar timing luck with this streak, although it is still technically the best ever. And in the late 80s, maybe mid 80s and early 90s, when Miller

was starting the fund and working as, I think, maybe a vice president or kind of what you described maybe as a vice president before he got the promotion to lead it. He was looking at financials and how they collapsed due to what I believe was the savings and loan crisis. He talked to Peter Lynch, the biggest mutual fund manager of the day, who tipped him off to Fannie Mae and Freddie Mac. Here's a quote from an article. In 1984, Mr. Miller paid a visit to influential Fidelity investment manager Peter Lynch, who suggested Mr. Miller take a look at Fannie Mae. Much like today, the mortgage company had a portfolio full of troubled loans. Traders were betting it would go bust.

Mr. Miller found Fannie's case compelling. The bad loans would soon roll off its books. The government-backed company would be able to borrow at preferred rates, and its low-cost structure could make it hugely profitable. Is this thing really trading at only two times what it's going to earn in three or four years? Mr. Miller recalls asking Mr. Lynch in a follow-up phone call. And we'll leave that one there because... So that's going to relate to our great financial case study and how maybe while Miller made a lot

of money there, he potentially learned the wrong lesson that led to his performance during the great financial crisis. And I'll read another quote from his history. During the savings and loans crisis in 1990 and 1991, Mr. Miller loaded up on American Express at Freddie Mac and struggling banks and brokerages. Financials eventually made up more than 40% of his portfolio. He looked wrong at first but these stocks eventually propelled value trust to the top of the performance charts in 1996 value trust gained 38 outpacing the s&p 500 by more than 15 percentage points by then mr miller was loading up on aol computer makers and other out of favor tech stocks which leads ryan to our first case study in dell computer yeah he made tons of successful

investments over the years i mean you kind of have to in order to outperform the market for 15 straight years but dell computer was one of his best he started buying dell around 1996 and i think when most people think of the 90s they probably think about roaring tech stocks and the dot-com boom and think it was like a very successful period for tech stocks broadly but that was really the end of the 90s there were prior to 1996 it wasn't quite as glorious and there were several short-lived corrections in tech stocks specifically one of those was one of those stocks was dell computer and in 1995 1996 there was sort of a mini panic about a potential slowdown in pc demand it's always funny looking back like 30 years

and obviously pcs have taken over the world they're so pervasive today but the the fact that people were it it feels dumb when you look back and think why were they worried about pc demand there was 30 years of a tailwind behind them but we probably do it today with all i mean i'm sure people do with ai like are we you know are we getting ahead of ourselves they're going to be slow down in demand and maybe 30 years from now we're going to be laughing at each other yeah different size industries in the trillions of dollars versus whatever dell computer is that but you're totally correct at that point it was less of the internet growth even though that was still in the very early innings as opposed to the at-home computer usage because if you look at the

timeline of the history of the computer it was first research and then second at work where you would have the computer at work that you could use those giant machines you could work with at the office and then the second revolution which intel microsoft and then eventually dell took off as well as apple was the at-home computer the pc the personal computer and there was a multi-decade what we call secular tailwind where by the or what would you say early 2000s maybe we don't have the precise timeline there but maybe maybe a little later maybe the 2010s almost every person had a personal computer at their home and and of course dell has been one of the biggest beneficiaries yeah there's uh there's a lot of interviews with bill miller himself but there's also

So I found an insightful interview with Robert Hagstrom, who is a friend of Bill's, I think worked with him for a long time. He's also the author of The Buffett Way, which is a good book. And he actually talks about Bill Miller and I found some of his quotes insightful. So here's how he described the entry opportunity that Bill Miller got in 1995, 1996. He says, during a market correction in 1996, Miller looked at cyclical stocks like steel, cement, and paper companies, which were cheap and down and acting badly, just the sort of thing we tend to like. However, he decided to pass and instead invested in several technology companies. dell computer was selling at about five times earnings and he bought it together with finnish mobile phone leader nokia obviously not the mobile phone leader anymore and he also invested in aol when people thought it was going bankrupt now aol a lot of us probably think well that didn't turn out so well it did that was a phenomenal investment for him even though it's not relevant today in 95

buying an aol you had like five or six years of rock solid returns but what exactly did miller like about dell dell was operating sort of a revolutionary model at the time and i'll the revolutionary part was the returns on capital and specifically what miller liked was the negative working capital cycle i'm sure they were not the first to ever do this but they seem to be one of the big case studies when you look back on like what companies had great negative working capital cycles dell is constantly one that's referenced so here's another quote from hackstrom he says you may remember that the process of buying a computer back then was customers would call dell choose configurations such as monitor keyboard processor storage capacity etc then dell would

quota price and promise delivery within two weeks customers would use american express for example for payment and the funds are credited to dell's account on the same day however dell waits 30 60 or even 90 days before paying its suppliers that this means that it relies almost entirely on customer prepayments to sustain its entire business model it is this negative working capital model that has enabled dell to achieve a 100 return on capital now i believe hagstrom said this was the first company that he had ever seen with more than a 100 percent return on capital so you could see why it stood out a lot of people were worried about pc demand and just didn't appreciate the negative working capital cycle that dell was benefiting from and miller

believed that dell was in his words the walmart of the pc industry i was trying to look through the returns for dell but it's a little tough because a they went private in i think 2013 came back public in 2018 so any of the stock charts you see today are basically up until like 2018 2019 and they had a ton of different splits so i looked at all this dell actually has some long page on their website of the end of day closing price split adjusted of Dell shares. It's just a long PDF with page after page of end of day closing prices. And if you look at March of 1996, which is apparently when he started buying shares, Dell shares were trading at roughly 93 cents per share split adjusted by the start of 2000. So just over four years later, the stock was

trading at more than $50 a share. So this was more than a 50 bagger actually in less than four years for him. I don't, I know he started trimming the position around the top. So he generated an actual 50 bagger during that time, but I believe he got back in around like 2002, 2003. So I'm not sure what his total returns ended up being, but for that five year period, friends have said in interviews that it was a dell was a 50 bagger for him and i i it's weird to say that this is like controversial because we look now and think well dell computers that was sort of uh an innovative company of its time but it was trading at five times earnings people like investors were a lot of investors were probably discarding it this was not i can't imagine this

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on instantly available cash held in your investment account. Head on over to ibkr.com, rates subject to change, margin evolves risk, restrictions apply. Interactive Brokers is a member of SIPC. Yeah, I agree. And what's interesting about this one, especially with that working capital cycle, one, he was someone that has repeatedly said that you can use gap numbers, but when you actually look at the business, each business is different and there's going to be different characteristics that lead to the long-term cash flow characteristics and what cash is actually accumulating on the balance sheet that they can use to either reinvest for growth or return to you as a shareholder. Yes, some of that is working

capital dynamics. And a lot of people say, well, don't look at the free cash flow because of XXX and X. And that is true if you're kind of doing a liquidation value or if you were thinking, well, what could they actually return to you as a shareholder? But in growth mode, this can be highly attractive. And the reason is, is if you have this negative working capital, the faster you grow the more cash you get in so unlike most companies which we're seeing

with the AI businesses today the AI startups the faster you try to grow the more money you lose which leads you to need to raise money you need to dilute shareholders you need to raise a bunch of debt

you can add a bunch of interest payments on your income statement a company like Dell Computer with this negative working capital cycle and we have companies like this today I think that we own in our own portfolios it could be highly attractive

to try to grow without needing that outside capital. And what I think Miller saw, along with maybe the underrated tailwind in PCs and PC growth and PC spending, was this. That's what led him to have a 50-packer here. Most analysts were probably looking at it and saying, eh, the true earnings aren't that good.

But in reality, that cash flow helps them grow and the earnings will catch up over time yeah he's a great example of how gap earnings just aren't made equal and we're going to talk about amazon in a second gap especially for early days same thing yeah gap can change over time but amazon's a great example where gap was just not very truly reflective of what the business was earning under the hood And if you're able to think differently and figure that out, there's definitely returns to be had. Yeah, what's funny is that Amazon had that negative working capital cycle, but when AWS keeps getting bigger and bigger, they actually have the opposite. So you might, you know, there's arguments to be made out there that the original e-commerce marketplace is actually a better business from that standpoint than AWS, even though people just absolutely adore the cloud computing business.

But let's move on to the second case study. This is the big mistake of his career, at least one of them, at least the most notable. And it's the great, what I'd like to call the great financial crisis, misread. I think that's a good way to describe it. And if we look at, you know, we have the context of this timeline. Ryan just talked about the big wins during the 90s. I talked about the investments in American Express, Fannie Mae back in the day. He's done well in tech.

He's done well in financials. He's done well looking at out-of-favor stuff. cheap stuff that he believes are good enterprises. And by the onslaught of the GFC, Miller was riding high. I got conflicting numbers out there, and maybe mutual funds were reporting this publicly. So there could be a number. I just couldn't find it. But it looks like the value trust had about $20 billion in AUM. But either way, what the exact number was, by 2005, he had tens of billions. And AUM making it one of the largest individual funds in the world. Maybe the largest mutual fund at the time, but if not for the entire investment fund universe, he was one

of the largest investment managers by AUM. And then the GFC hit. Many listeners will know the story by now. As housing prices fell, defaults went up on badge mortgage loans, and the credit market for mortgages began to seize up. And slowly, I think listeners listening today should remember that this was a two-year process by the government. So it wasn't like the COVID thing where maybe they learned their lesson, they had to be fast, and you can't just delay and delay and delay and keep changing your mind. The government decided to meddle, make pronouncements, do different funding things, do different bailout things for the financial sector, and a lot of decisions were being made that could and would permanently change outcomes for shareholders. And this presented

a terrible setup for a contrarian investor like Miller who thought that financials looked cheap and would turn around. He made similar bets in the 90s that those investments of Fannie Mae and Freddie Mac and his thinking was the next year or two were going to be ugly but the companies would come out on the other side. They're protected by the government and everything would be fine

once the economy turns around. He saw similar opportunities in distressed financials across the board in 2008. He invested in, and listeners who know these stories are going to just wince at these companies, AIG, Wachovia, Bear Stearns, and Freddie Mac. Now that is a tough dartboard to hit there. And when once asked whether it could be a mistake to keep doubling down on fallen stocks such as these, which is something he tends to do that others don't, there's that famous quote from, I think, who is it, Paul Tudor Jones?

maybe maybe not who's someone maybe we should cover on the podcast uh the you know losers average losers well miller took that to heart to heart and kind of did the opposite he said well the stock's gonna survive i'd rather buy more and more and more but he said the only time he wouldn't keep doubling down on a stock is if there weren't any quotes left out there and well that kind of happened with these businesses it's it seems obvious in hindsight because people have watched the big short and they make he's probably not a fan of that movie yeah they make people seem anyone that was bullish on these companies they make them sound like they were just not looking at the financials or didn't understand the businesses they made them look dumb frankly

in the movie but it would have been so easy i think to fall trap to its housing it's massive is the whole housing market really going to fall apart it's been so stable for a century the government is helping here or it's in their best interest to help these companies have been around forever and not actually know what's under the hood of those uh cdos so i think it was called cdos at the time i can't remember maybe it was just yeah that's part of it sure so i do kind of sympathize with him a bit but you're going to get to it it's a good example of concentration has repercussions yeah that's fair he would maybe argue and i've heard people say is that well this is a very notable mistake but this is one of

one mistake and he's made a lot of right decisions as we're going into two other really really right decisions and a lot of the people that are the perma bears that were right during the big short not all of them you know some of them have great track record since then but a lot of those people were right once and then they're paraded around like they won the world series so as we'll get into the numbers here didn't kill his overall returns but let me get to and there is a nice wall street journal article from i think 2009 or 2010 that goes through the whole timeline on this. It's very, very long. I think it's about a 20-minute read. But quote, in 2008, Mr. Miller continued to accumulate Bear Stearns. At a conference on Friday,

March 14th, he boasted that he had bought just that morning at a bargain price north of $30 a share, down from a recent high of $154. That's some psychological fortitude. Think about how the stock price talks to you when it falls so quickly. I mean, you see that with what Constellation software, as we mentioned at the start of this episode, unbeatable when it was at 50, 100 times earnings. People weren't asking any questions. Now, price is cut in half. People are really wondering what exactly is going on. But I continue to quote, Bear Stearns collapsed that weekend. In a takeover brokered by the Federal Reserve, JP Morgan acquired the storied investment house in a deal that first valued it at $2 a share. And what he talks about in a postmortem here is that

even though his valuation on Bear Stearns over the long haul was technically correct, he looked at, I think he even talked to Jamie Dimon himself and said, hey, look, this is when, these were my numbers. Did you guys come up with anything different? And they apparently said, look, yeah, it's the same. There's a reason that JP Morgan was willing to take on that risk because they said, look, the business will be, come out clean on the other side and be okay, we think, especially when you can absorb them onto a larger balance sheet like JP Morgan.

But he underappreciated that there was major, quote, run on the bank risk, as well as liquidity risk, that could just destroy this company, even if the actual earnings, I mean, this is similar to Silicon Valley Bank, it's similar to First Republic Bank. it is the risk that perhaps kept people away from remember when Charles Schwab was facing similar issues not nearly maybe as bad but potentially if that banking tantrum what was in a 2022 kept continuing those are the type of things that can be very very hard to underwrite but if we look at 2008 the pain didn't end there even after this mistake he doubled down on AIG and Freddie Mac he dismissed that the government would nationalize the GSEs which as Fannie Mae and Freddie Mac, without making shareholders whole. And this was wildly incorrect.

In September of 2008, the government announced it would be taking over Fannie and Freddie, a bit of a surprise, and making the shares worthless. Now, I wonder if he still held on, and the fact that these companies might go public again, he could be in for a rebound and do okay over a 20-year period. But he outlined why this was very, what he thought, even though he lost a lot of money, unwise for the government to do in his Q3 letter of 2008 because it was a wrong example and caused all the, quote, sheep of Wall Street, you know, he included himself in that, to panic when there needed to be calm. Here's the quote. The GSE nationalization created what Karl Marx would

have called a contradiction in the capitalist system. The contradiction was that the government repeatedly said financial institutions needed more capital, that it wanted private capital to solve the problem. But the government also indicated that if it needed to provide additional assistance in the future, then shareholders who have provided capital should be completely or mostly wiped out. Private capital will not be forthcoming if it believes it is the policy of the government to wipe it out should intervention later be necessary. Still, prior to the seizure, there had been enough private capital around to put large amounts of money into Merrill Lynch, AIG, and Lehman, but when the government preemptively seized the GSEs, not because

they needed capital and could not get it, Fannie Mae had $14 billion in excess capital and Freddie make several billion above regulatory requirements. But because the government believed they would run out in the future, then shareholders of every other institution that needed or were perceived to need capital did the only rational thing they could do, sell in the case government decided to peremptorily wipe them out. Essentially, long story short, if investors believe the government may wipe them out with no recourse, you're going to sell it. You wouldn't want to own that. I mean, that makes logical sense to me. I wouldn't want to touch any of these things. That brings even more capital out of the system at the time when they need capital to go in. And I really get his

point here. But at the end of the day, he was still wrong to make huge bets on these financials because of these risks. And you could see it in the returns. All of the outperformance, at least by certain metrics, was gone by the end of 2000, I think 2008, maybe 2009. My question is, does this show that Miller's strategy works through the cycle if he was matching performance at his worst moment or does it show the quote luck and randomness of his highly risky contrarian strategy where it's kind of like oh as some people see it well he's betting on i don't know the rules of roulette that well but he's betting on like one of those numbers and putting all his money there and just oh okay well it hit on there and i guess it it went up 20x

yeah i don't know what the lesson to take away is here because there's a lot of lessons to take away from him being him outperforming the market for 15 years straight and a lot of his great investments like we're going to talk about we talked about dell we talk going to talk about amazon here in a second there's a lot of good lessons to take away part of this does feel like he did the right work it sounds like he did great work but the future is random and the run on the bank like stuff with bear stearns the government nationalizing these he couldn't have foreseen that so i guess my takeaway is no matter how right you think you are have some level of diversification don't let us don't don't get to a single point where

one position or two positions or even like industry exposure could be the thing that and it's not like he necessarily got wiped out but it's pretty staggering to erase 15 years of outperformance in two years yeah that's a good point i think it also shows maybe who we just studied uh chris hone was right to just not mess with financials because you have that risk you can go to zero. Maybe if you are going to mess with a lending business, that's very, very hard to see what's actually on their balance sheet. Never size it up too much. But let's keep moving here. Let's talk about one of his well-known bets, one of maybe his best investments ever, and that is a company that every listener is going to know, Amazon.

Amazon, I believe, is Bill Miller's best investment ever. He first started buying amazon for the leg mason value trust i think it was a mutual fund uh in 1999 that was that might sound like a whoa he bought back in 99 but that really wasn't great timing it was actually two years after the ipo and he bought at i believe essentially the dot-com peak so this isn't uh you have this you have this chart here ryan it says that he started in 19 first in 1996 right or is that dell no that one's dell on the it's uh so dell's on the left aol's in the middle amazon's right so he started buying yeah late 1999 it was literally almost the top but he ultimately ended up doubling down as the stock price came down which it sounds like he's

had it sounds like he had a lot of success doubling down leading up to the gfc which is maybe what hurt him so much um anyways here's what miller had to say on the amazon investment at the time he says it's hard to imagine that the trade of a lifetime buying more amazon stock in the middle of the dot-com bust was controversial and difficult but miller admitted that we were clearly wrong in buying when we did an average down miller eventually shifted from amazon stock to the convertible bonds which also allowed him to realize a tax loss he remained steadfast in his belief in the company's future most people try to maximize the number of times they're right he said the real question is how much you make when you're right it is i think that's like

a point that's maybe worth talking about is buying amazon and maybe we could do a whole episode on this would we have bought amazon at the turn of the century because for the traditional value investor community it didn't check any boxes yeah unprofitable yeah a little high starting valuation i do think that would be a fun series would we have bought amazon apple microsoft what have you google summit google's s1 google yeah they came out so it's so hot uh it's such a big valuation already that one's a little bit tougher and maybe not as the returns aren't as as powerful but I think it could be a fun thing as a sidebar for future episodes. And on Amazon, yeah, I do agree.

You have a lot of things that people would not have liked. You also have the fact that you could have just said, they're exposed to the dot-com bubble. There's going to be a lot of fallout here. I don't know when to time the bottom. Maybe that could get you to go in, but the numbers were going to look very, very ugly in 2001 and 2002, even though the core underlining business

was kind of starting to slowly gain that momentum. Yeah, by 2001, after continuous buying of Amazon shares, Bill Miller had taken a 15% stake in the company. Apparently he was the second largest shareholder behind Bezos himself. So what exactly did he see in Amazon? Apparently a few years, a few years earlier, he met Jeff Bezos at a brokerage conference prior to the Amazon IPO. So it was probably like the IPO roadshow and they were on stage together. I think he was interviewing him. And Bill asked him at the time, what is your business model? How are you different from Barnes & Noble? Jeff replied, our model is Dell, which for Bill Miller. That gets his hairs out of his forearms to just start tingling. He goes, oh, okay.

Right. Yeah, I mean, for Bill Miller, that's probably music to his ears. And Bezos understood as a financials analyst, he was a guy that understood income statements and the cash flow statement. that kind of separated him from the pack i think he understood the power of that uh going back to his financial analyst days yeah it still exists today like it's pretty rare that you get a technical software founder or maybe not software but tech founder that has a true grasp on wall street and financial analysis and bezos was kind of a savant in that that way but bezos when

he elaborated on why they are like dell he went on to explain that books can be stocked for six months or even longer and can sometimes be returned for free in other words he hardly needed to tie up any capital especially since they started out operating out of a garage with very low costs so the capital efficiency is something that miller often mentioned to investors when he explained why he owned amazon because a lot of people would grossly overestimate what amazon's cash burn was and he the quote is he says amazon generated its first 600 million dollars in sales on just 28 million dollars in capital it's that negative working capital cycle we mentioned it for dell where the customers are funding the business for amazon they they're in this case

They're getting the books from the booksellers, holding it for free, potentially for free returns. Customer sells it. They don't have to pay the supplier back for a little while. So it's very nice. Here's a quote on why they ultimately decided to invest in Amazon. I actually think this is a really, really good quote. He says, with Amazon, for example, we performed a regression on about 200 variables against

each other to see what was really correlated to Amazon stock price. As you might expect, it isn't gap earnings. it isn't free cash flow even it was growth of gross profit dollars that was a really interesting thing and something we suspected jeff bezos made a comment about 15 years ago that he wasn't focused on margin but on growth of gross profit dollars lo and behold that had a 95 correlation with amazon stock price this makes perfect sense because gross profits in essence is the cash they had to work with after the cost after cost of goods sold everything they did with that cash was an investment if the aggregate for those things was earnings above the cost of capital

then that was a perfect correlation i think this is a good lesson i i have because i'm looking at coupong these days and it's so often that you see especially for a real capital intensive business like this this was music to my ears where it's like the below the gross profit line that's investments. And so he was basically looking at the income statement and the financials differently than everyone else. He didn't care about gap earnings. There was a, I don't know if I wrote it down here, but basically, okay, I did. So he would go to these value investor conferences or something like that. And they would criticize him because it looked expensive on an earnings multiple basis and they would ask and he would ask them like do you think amazon

has made or lost money over the last five years in aggregate and everyone would say they've lost money and estimates range from like hundreds of millions to billions of dollars in money lost i can't remember what year this was and he said no in my opinion they've made money you just don't see it in the gap earning so he was just looking at it differently and i think he came to the conclusion that they had made 100 or 200 million dollars before reinvestments back into the business that was what allowed him to i guess view amazon differently he's owned it for 26 years straight now i don't know his exact returns sounds like he's had a lot of it yeah yeah shares were up 55 000 percent since 2002 i'm gonna venture that this was a pretty darn good investment for him

probably uh more than a 300 bagger at least and they uh doubled down i think coming out of the gfc as we'll get to one of our other bets here wasn't necessarily what helped the fun but bets on both amazon and netflix coming out of the gfc were what helped recover the funds returns and those were fantastic times to buy both of those businesses it reminds me of someone we know right david david gardner by the amazon and it might be overvalued today but we're going to bet on this very very sharp founder in a growing industry and they'll figure out the biggest business model on the way and i think what any what never makes sense to me at least nowadays as someone who's trying to learn about business models for the last

I guess coming up on a decade, the PE stuff is just, it's too simplistic thinking where you have to ask yourself, all right, over a five-year period, if the cash generated and put onto the balance sheet is higher or lower, like, what would you call that? would you call that earning money or losing money because the only way you can actually make money as a shareholder is returning cash to to you by the business through dividends or buybacks and the only way they can do that is by piling up more cash on the balance sheet it's simple the p.e multiple is the greatest lie investors are told and everyone falls victim a lot of times a lot of times yeah where it's just you can either be misled in a positive way by thinking it's extraordinarily cheap or you can be misled by omitting companies but i think it's i'm thinking it's cyclical minor at the top yeah you buy it oh pe's five is cheap or yeah and it's actually

good lesson because it's a good reminder to not don't start your research process by charting multiples i i really believe that like it can be i like looking at maybe a gross or profit or revenue multiple honestly even first for that just because like all right if you're trading at 30 times sales maybe just check that and go oh okay i don't want to waste my time researching at that at that point i do it i do it all the time i just chart like whatever forward ebit whatever but i shouldn't because the only thing that matters is what i think or what they actually end up earning in the coming years relative to what you're paying today and a trailing multiples really not telling you that so it oh yeah yeah it's fair point or or profit potential

Where a lot of people go, well, the company maybe is spending so much on new projects or the current management team isn't disciplined on capital spending or operating expenses or what have you. But I think that can also underrate it because at some point, if you're confident in the competitive advantage or growth runway or business model, eventually you will get an operator in there that'll trim the costs to get those profit margins up to what they could be. That's kind of how I look at Airbnb today, where you have that balance where, okay, is the moat going to be there 10 years from now? Sure. All right. Eventually, the profits will show up and the stock price will follow that. Now, let's talk about something that has no cash flow. Yeah, yeah.

We were thinking the exact same thing there. Yeah, a company with no earnings that may be even on a percentage basis is number one investment. No, not a company. it's a it's something it's out there and it is bitcoin all right folks before we move on let's talk about our home for investment research fiscal ai fiscal ai is the complete stock research platform for fundamental investors we use it every single day here at chit chat stocks it has everything you need to research individual companies from 20 years of financial data to company specific segments and kpis earnings call transcripts morningstar reports and insider

ownership data, and much, much more. And they just lowered the price of their highest tier by 60%. If you want a complete enterprise-grade financial data terminal, check out Fiscal.ai. If you use our link, fiscal.ai.chitchat, you will automatically get two weeks of Fiscal Pro for free, no card required. And if you want to upgrade, our link will get you 15% off any paid plan. Again, that's fiscal.ai.chitchat. The link will be in the show notes. All right, listeners, I want to take this time to remind you about the Emerging Moats Stock Research Service, a newsletter that will produce a stock research report every four weeks, regular updates on existing stocks in the Emerging Moats universe. We have an upcoming schedule, including a research report on Wix.com. We have Interactive

Brokers, American Express, Nintendo, Airbnb, Nelnet, and much more. Please, if you want, reach out and get a complimentary free trial. You can do that by contacting me through the link in the show notes and giving me a DM on Substack. I hope you'll try out the service. This one is going to be maybe painful for Ryan and I since we are Bitcoin skeptics, but you have to admit, looking at the numbers, Bill Miller's Bitcoin bet looks like an intelligent and quite profitable Kelly Criterion type investment that has worked out wonderfully for him. He and his son had this to say about the currency. Quote, our thoughts process on Bitcoin is a representative example of a probabilistic value approach,

even though the asset may not hit the radar screens of more traditional value investors. They wrote this in 2005. At the time, Bitcoin was trading at between $200 and $300 a coin. 2015, sorry. Thank you, thank you. I misspoke there.

It's about 10 years ago. 2005, it wasn't invented yet. Correct, that's why I made sure to book it. Yeah, yeah, that would have been embarrassing. They were not allowed to buy it for the fund, and there's restrictions on that from mutual funds and what have you. But they wrote that they both owned it in their personal accounts. This is what they had to say about it going further. Quote, according to the World

Gold Council, less than 175,000 tons of gold have been mined since the beginning of existence at a spot price of $1,000 roughly. That means an aggregate value of $6.4 trillion of all gold ever mined. Bitcoin achieves that capitalization on a base of 21 million coins. Each coin would be worth $314,000 or over 1,000 times the current price of $230. And sitting at $100,000 today, Ryan, we're pretty close. We're pretty close to that. And here's what they had to follow up based on their probabilistic value here. That leaves us with a 97% probability that Bitcoin is a failure worth nothing. However, using our aforementioned assumptions, the probability weighted value of the cryptocurrency would be $1,200 today for an intrinsic value or five times greater than where

it actually trades. Now, we know what the price is of Bitcoin right now. So even if they assigned a low probability here, the bet clearly worked out. And now Miller has claimed that Bitcoin and Amazon are somewhere around 50% of his personal portfolio. Not a bad set of returns there. the exact exposure to crypto for Miller's family is not known but he is what you might call a maxi on the cryptocurrency and he has said that it is sizable so I'd assume that it's worth over a billion dollars given his personal wealth and here's a quote from his son

that could probably easily be from him but it shows how much over the last decade they have gotten into the Bitcoin maximum play as the store of value. Quote, this perspective is not new and has often been repeated since Bitcoin's inception 16 years ago, while more people arrive each year at the opposite conclusion. Markets currently ascribe nearly $2 trillion worth of value to the technology and the collection of Bitcoin ETFs launched less than 12 months ago would now hold over $100 billion

in assets with billions of dollars in average daily volume. There are over 70 companies on global public exchanges collectively owning nearly 600,000 Bitcoin and MicroStrategy is now part of the NASDAQ index. Leading United States politicians are talking about establishing a strategic Bitcoin reserve. So clearly they, while not all in, as we're going to look at that portfolio for the Miller Value Partners, it has worked out for them. They seem to think that momentum begets more momentum with Bitcoin because more people are in. Now it's kind of like, all right, we're all in this thing. We have a wealth of writing on the line, things like that. What do you think of the Bitcoin bet they made,

can we learn anything from it? Because I have trouble outside of the fact that back in 2015 you could say, oh, I'll make it a tiny position if it works out, it works out. I kind of worry that they're doing the same thing they did in the GFC

or maybe not as large of exposure but going, okay, we made a bet on Bitcoin, let's bet on microstrategy, let's bet on all this other stuff. And those seem even more risky than the underlying Bitcoin itself. So curious what your thoughts are on this one, Ryan. It's been a good return for them, almost a thousand beggar, but I'm not a fan of the currency. Yeah, my thinking here is that if we use the initial thesis from them, which was the assigning probabilities based on the gold market cap.

Right. Tiny percentage, but if it works, a thousand beggar. if you assign the same probabilities this probably would be a net negative potential return here because for the kelly they said look it's a you know you've got a 1000 bagger potential with two and a half percent probability it's worth the risk even at two and a half percent chance i'm right if i get the returns so those returns basically played out now if you think the probabilities are still similar this is a negative expected return i assume using that same ideology so or methodology so it to me right at this point do you sell right that's basically what i'm saying is it's a very different investment today at two trillion dollars worth of market cap in bitcoin

than it is in 2015 so it feels weird to kind of be doubling down when the forward returns using the same methodology they made 10 years ago are so much worse so anyway to me there's not a ton of lessons to be learned here because it's not really how i invest um maybe one day i'll change but it's it's hard for me to adopt this i feel like i could get burnt pretty bad adopting this sort of investment methodology. Yeah, that's a fair point. I think they might argue that the higher the price goes, the more of like the Bitcoin is de-risked.

But if you take that logic... But isn't that just... That's the logic of my... Yes, but I also think it's a little illogical because if you take that to its end, like there's no limit and it should just go higher. the higher it goes the more certainty you should have it's kind of the micro strategy thing where it's like oh the more people are in it the more people that are going to come in it and it kind

of makes me think at some point you are the size of the entire gold market and the risk isn't really worth it anymore the whole analyzing cryptocurrency thing has always just felt very circular to me like yeah confidence if price drives narrative narrative drives price higher price higher probability that it's it just i don't know it all feels very circular let's look at his actual miller value partners portfolio which you can find with his son but yeah yeah i think he stepped away in 2023 so i might be wrong in that year but uh his son runs the portfolio or the value partners portfolio now if you want to check out the portfolio you can look up bill miller on fiscal ai you'll get a nice little pie chart there i'm just going to read off his top five

positions number one neighbors industry or nabbers industry 10 of the portfolio number two lincoln national eight percent gray media eight percent quad graphics seven no six percent bread financial six percent financial that's the funny one of those companies have not heard of any of them maybe lincoln national but either way i mean i don't know what any of these businesses do it's interesting they they they they are very flexible type of investors this is a huge pivot into this deep value names i don't know if you named the pe's here but they're quite cheap okay when i sell my business i want the best tax and investment advice i want to help my kids and I want to give back to the community.

Ooh, then it's the vacation of a lifetime. I wonder if my head of office has a forever setting. An IG Private Wealth Advisor creates the clarity you need with plans that harmonize your business, your family, and your dreams. Get financial advice that puts you at the center. Find your advisor at IGPrivateWealth.com. You've got to try Breakfast at A&W.

You gotta try breakfast at A&W And what better way than with the delicious Pret Organic Coffee, starting at just $1 all day, every day, now until December 31st. You gotta try breakfast at A&W At participating A&W locations in Ontario. now i didn't mention them but the pe on all five of those top positions is below 15 times three of them are below basically seven times but again we just talked about the uselessness of the p metric most of these companies i've never heard of that's probably a good sign if you're in the

value investing uh world they all i actually i really don't know if there's a whole lot to be taken away from looking at this portfolio since a his son runs it now and you know you kind of have to have a view on him as a manager as opposed to bill miller and we just spent the whole episode studying bill miller the third so there's not a whole lot to say there i will maybe mention quickly there are some more familiar names in this uh portfolio that are small positions build bear UPS Verizon strategy but they're very small I do however want to take this quote from Bill Miller the third the one we're actually talking about and this is his thoughts on portfolio management I think it's really helpful

and I actually think it's kind of a something that I've maybe accidentally adopted which is he says we construct portfolios by using factor diversification. We own a mix of companies whose fundamental valuation factors differ. We have high PE and low PE, high price to book and low price to book. Most investors tend to be relatively undiversified with respect to these valuation factors, with traditional value investors clustered in low valuations and growth investors in high valuations. It was in the mid-1990s that we began to create portfolios that had greater factor diversification, which became our strength. we own low pe and we own high pe but we own them for the same reason we think they are mispriced

i think it's a really good example of basically what we talked about which is the only thing that matters is what they earn in the future relative to what you're paying today and a lot of people have a hard time with that a hard time forecasting and want to rely on trailing numbers so anyways i I thought that was kind of a cool way to say it is basically doesn't matter what the headline multiples are today. You own them because you think they're undervalued. I think that leads right into our final question we do on every super investor episode. What do we learn from studying Bill Miller? I can go first and then Ryan can introduce anything later. I'm going to have three things here. One, and this relates to what that last quote, I guess all three do really

thinking from first principles, Miller does not care what other investors think about his investments, which allowed him to invest in Amazon, when it was the stock that people made fun of for value investors for owning, or value investors made fun of for owning. Same with Bitcoin in 2015. It was kind of a joke back then. Many, many investors would be afraid of making these decisions publicly because of how it would reflect on them in their community. I mean, think about it. People, especially if you can look on Twitter, right? You say, oh, I'm getting long this people go oh this guy that is just a quote tweet out of nowhere this guy's gonna be ruined in three years good luck to this guy like i mean oh boy he's actually it's it's interesting

looking back at his career and specifically at the gfc i wonder how much it does it discouraged him from speaking out about what he invests in, speaking publicly about what he invests in, because now he's kind of been chastised for it. They put him in a movie and made him look like the villain. Well, he said that now that he's not running a mutual fund, the part of the public speaking was marketing to get the fund bigger. And that was what they wanted to do as part of his business. And now he says he doesn't care, especially he's older, too. Yeah, that's fair. All right. Any other lessons? Yeah. Second one, don't pin yourself down on a style. Ryan just mentioned in this, you invest in a wide range of security types. A problem you see many,

many people out there is pinning themselves down as, oh, I'm deep value guy, or I'm growth guy, or a day trader, what have you. Oh, I'm a Forex guy. I don't know if anyone does that. But this is a self-imposed limit on your investable universe, which makes no logical sense. If something looks cheap, buy it. It doesn't matter what type of business it is. third one don't bet big with liquidity or zero risk or go to zero risk i think the gfc mistake would be avoidable if miller took the heed from buffett's never go to zero mentality this means avoiding stocks where the balance sheet can totally blow up as a large position in your portfolio or not running into a liquidity crisis that can implode your position now you say then

buffett owns a bunch of banking stocks but that never happened to him at least i don't think or you really shouldn't be betting on the government acting in shareholders best interest in a crisis yeah the only other two that i'll add i just wrote these two down for myself after talking this over number one trailing multiples don't matter we just talked about that two don't let someone who doesn't know the investment discourage you from your investment so for example when he bought dell at five times earnings i think it had run up like 10x in the first year or two so many people were asking when are you going to sell when are you going to sell it's looking more expensive on an earnings basis don't don't be discouraged by people who haven't

necessarily done the work that are telling you it's overvalued or you know they don't have the same assumptions that you do on the business that kind of thing so um that would be i guess my uh my two lessons along with what you have here he definitely never pinned himself down to a certain style which worked out for a long time and it also allows you to earn returns in years when your preferred style might not be working i don't think he would have been able to generate consecutive years of strong returns 15 consecutive years if he only had one style that's a fair point all right I think that's going to close things out. I hope everyone learned a lot about Bill Miller's investing style.

We did as well. You can look at our old catalog, maybe by searching names within the podcast feed. I know there's a way to do that, but if you just scroll through or kind of search for it, you will be able to find the, I think over a dozen at this point, investors we've covered.

We're going to be covering more this year. If you have a specific person we haven't covered that you would like us to analyze, let us know. We're kind of looking for the last ones we should do. besides that keep on the lookout for each week we're going to have a power out there for everyone and fun

interviews and investment analysis for different stocks and more super investor episodes coming people's way along with thematic investments go listen to our defense one we're going to have a lot more of those coming in 2026 let's hit the disclosure

and get out of here we are not financial advisors anything we say on the show is not formal advice or recommendation Ryan I or any podcast guests may hold securities discussed in this podcast, may have held them in the past, or may buy, sell, or hold them in the future. Thank you, everyone, for listening to this episode once again, and we'll see you next time.