It is fascinating that the big collapses (he financial debacles that are studied years later as well as the crushing military defeats) often happen after a long period of wins. Why? Because the decision makers fall in love with their ability (over confidence) and believe that just because it worked in the past, it will work again.
The following WSJ article talks about Bill Miller. Since many of you may not know him, let me give you a quote from the Legg Mason on its legendary fund manger:
"He was ranked among the top 30 most influential people in investing when he was named a member of the "Power 30" by SmartMoney. He was also named by Money magazine as "The Greatest Money Manager of the 1990's" and named Morningstar's 1998 "Domestic Equity Manager of the Year." In 1999, he was selected as the "Fund Manager of the Decade" by Morningstar.com. Also in 1999, Barron's named him to its All-Century Investment Team and BusinessWeek called him one of the "Heroes of Value Investing."But that was before. Before this crash. Before things changed.
Without further adieu I give you the Wall Street Journal on (former?) stock market guru Bill Miller.
Stock Picker Bill Miller's Defeat - WSJ.com:
"Fueled by winning bets on stocks other investors feared, Mr. Miller's Legg Mason Value Trust outperformed the broad market every year from 1991 to 2005. It's a streak no other fund manager has come close to matching.I feel like an ambulance chaser right now. Have to report it so others learn from mistakes and are not (as) Fooled by Randomness, but I still feel sorry for him.
Mr. Miller was in his element a year ago when troubles in the housing market began infecting financial markets. Working from his well-worn playbook, he snapped up American International Group Inc., Wachovia Corp., Bear Stearns Cos. and Freddie Mac. As the shares continued to fall, he argued that investors were overreacting. He kept buying....
A year ago, his Value Trust fund had $16.5 billion under management. Now, after losses and redemptions, it has assets of $4.3 billion, according to Morningstar Inc.......These losses have wiped away Value Trust's years of market-beating performance. The fund is now among the worst-performing in its class for the last one-, three-, five- and 10-year periods, according to Morningstar."