Bill Miller on Large Cap Stocks.

As evidenced by the most recent quarterly returns, the largest capitalized companies continue to lag their more smallish and more exotic brethren. In today's momentum based world emerging markets and small to mid capitalizations continue to dominate. The legendary Portfolio Manager at Legg Mason, Mr. Bill Miller recently issued some thoughts on the subject.

Miller has only seen net redemptions in his remarkably successful mutual fund on three occasions. "The first was in early 2000, at the height of the dot-com boom. The second was in early 2002 in the depths of the Bear Market. The third is now."

Please read this important piece. I find the following paragraph to be perhaps the most important part of his letter which is why I am reprinting it here.

People want to buy today what they should have bought 5 or 6 years ago; call it the 5-year psychological cycle. Today people want commodities, emerging market, non-US assets, and small and mid-cap stocks. Those were all cheap 5 years ago and had you bought them then you would be sitting on enormous gains. But 5 or 6 years ago, everyone wanted tech and Internet and telecom stocks, and venture capital and US mega caps. The time to buy them was in 1994 or 1995, when they were cheap. But in 1994 or 1995, people wanted banks and small and midcaps, which should have been bought in 1990, and well, you get the picture. In general, you can get a good sense of what to buy now by looking to see what the worst performing assets or groups were over the past five or six years. That is long-term for most people, and long enough to convince them that the malaise is permanent and to have migrated their money elsewhere, such as to whatever has done best in the past 5 or 6 years."*

What areas of the market are unloved today (perhaps not 5 years ago but at least in the past year or so) Financials, various sectors of health care, and large cap equities.

*Legg Mason Value Trust: 1Q 06 Bill Miller Commentary