Bill Miller on Commodities and Market Physics

Here’s a really old article, flagged it a long time ago, and just got to it now: “Bill Miller on Commodities.” How true is that? To make some money by buying things at the right place and the right time (if that is your fancy) you have to be buying things that are in the dumps, things that no one has made money on in a really long time, things that are cheap. It is funny how most humans never figure this out. Part of the reason why this happens is that bull markets can be so prolonged. The other reason I think is that when the big crashes hit, no one has any spare cash around to invest in the cheap stuff because, well, it was all invested, and now you’ve lost it.

One final reason could be that humans seem to have Newton’s 1st law of motion hard-wired into their brains. The law says that an object will not change velocity until a force acts upon it. Humans have a slightly corrupted version of this law programmed in their brains, however. A version that ignores the “until a force acts upon it” part. People forget so easily that there are forces that can cause markets to “change velocity” from upwards to downwards, instead thinking that the velocity will stay upwards (as if the world was frictionless). Inflation, rising interest rates, commodity shortages, natural disasters, a huge shift from the historical mean, war, stupidity, corruption, routine market correction, etc… In fact, in another analogy with physics, you could probably say that the magnitude of the restoring force involved is proportional to how far away from the mean the market has travelled, just like a spring (see Hooke’s Law). In other words, the bigger they are the harder they fall.

I’m curious, what has done really badly in the past few years anyways? What has performed the worst? I did a quick check of index funds using‘s fund filter and sorted them by worst performers over the past 3 years. It looks like tech stocks/nasdaq, bonds, and US equities (due to US dollar decline) have been the worst performers in increasing order of better performance. We also can’t forget about cash which also hasn’t performed too well (in never does, but it doesn’t do that badly either, just losing a few percent every year due to inflation). 🙂 What has performed the best over the past 3 years? Well just about everything, energy stocks, gold, Canadian equities, REITs, international equities, European equities, in decreasing order of performance. Anyways, don’t read too much into that, it’s just me playing around. I have a hunch though, that those investments that have performed well over the past 3 years are probably less likely to perform as well going forward.

Aside: Newton himself famously lost 20,000 pounds (in 1720, worth 1.9 million pounds in today’s dollars) on the South Seas bubble.

2 thoughts on “Bill Miller on Commodities and Market Physics”

  1. My personal opinion is that big blue chip US growth equities are going to outperform over the next five to ten years. Most of these stocks have displayed good revenue growth and most have doubled earning over the past 5 years. Whereas at one time investors were willing to pay a huge premium to the market for these stocks, now the pendulum has swung the other way. These stocks (like GE, HD, WMT, JNJ etc.) are now trading around the market multiple.

    Canadian investors can buy these stocks even cheaper now that our dollar is around 90 cents. Of course, everyone I talk to won’t touch these stocks “because the US Dollar is going down”. Funny how so few people were worried about the overvalued US dollar five years ago.

  2. Great contrarian thinking. My advisor is also saying that the US dollar is going down. It’s less likely to go down further than it was likely to go down 5 years ago, as you pointed out.

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