Bill “Asshat” Miller’s Massively Inane Twitter Gamble Ran Aground

I don’t understand these old fuckers, rich as could be, taking outsized bets like this–murdering their clients every 5 years in the process. If you recall, it was Bill Miller who got shipwrecked in 2008, long bank stocks out the wazoo, losing 55% on his flagship Legg Mason fund. Well, in recent years, Bill, aka Asshat, has been using options to lever up his bad stock picking, long tech stocks like Apple and Amazon.

That shit got him in an elevator with its cords snapped in half this year, as he dumped an astonishing 15% in notional value of his fund into Twitter.

Bill Miller turned to an unusual strategy in mounting his comeback as a top stock picker, buying options on hard-hit technology companies to make leveraged bets with a big impact on his returns.

The tactic paid off in 2013 and 2014 as Apple Inc. and Amazon.com Inc. rebounded and helped lift Miller’s $2.3 billion Legg Mason Opportunity Trust to a top ranking. The veteran manager is having less success so far with a similar wager on Twitter Inc. that he escalated last quarter, when he owned options allowing him to buy $350 million of the stock — equal to 15 percent of the fund’s assets.

The massive wager highlights how some managers are using derivatives to boost profits in mutual funds, tightly regulated investment vehicles that have strict limits on what they can invest in. The technique allows funds to make big wagers with relatively little money up front, though they can lose that money should their bet go wrong. Proponents of the strategy include bond manager Bill Gross, who has said managers need to use leverage to juice up gains in a low-return environment.

“You are going to get a much bigger pop to the upside,” said Abraham Goodfriend, founder of Yedid Capital Management, a Miami Beach, Florida-based firm that employs options. “The downside is, if you are wrong you are going to lose all your money” paid for the contracts.

Miller bought options on 9 million shares of Twitter in the third quarter, filings show. The drop in value of the options may be one reason the fund lost 4.6 percent over the past month and ranked among the bottom 5 percent of peers, according to data compiled by Bloomberg, though it’s still ahead of 95 percent for 2015.

Bill enjoyed huge success in wanton directional long gambles in both Apple and Amazon. He erred on the side of lunacy by going apeshit to the upside bullish on something he knows very little about.

In the first half of 2015, the fund bought 400,000 Twitter shares plus January 2017 calls entitling it to buy 1 million more at $35 each. Opportunity Trust purchased an additional 100,000 shares outright and increased its option exposure to 10 million shares in the third quarter, when warnings of slow user growth by then-interim Chief Executive Officer Jack Dorsey sent the stock sliding.

The fund spent $60 million, or $6.71 a share, on the options acquired in the third quarter. By Sept. 30, the contracts traded at $3.40, and by Dec. 30 they had tumbled to $1.40 as Twitter’s stock closed at $22.23, leaving the calls further out of the money though they have more than a year to recover.
Twitter calls were among Opportunity Trust’s “top detractors” in the third quarter, Miller and co-portfolio manager Samantha McLemore wrote in a shareholder report, when the fund’s 10.5 percent drop exceeded the 6.4 percent decline in the benchmark S&P 500.

What the fuck? Someone tell Bill to chill out and enjoy the splendor of his Baltimore offices, play some golf, dodge some local bullets, and quit playing in the sandbox of sub-mentals.

Bill and I have a long, rich, history, as you can see by this video.