Legg Mason Capital Management NYU Stern Business School May 9, 2005 Bill Miller Chief Executive Officer

Legg Mason Capital Management

NYU Stern Business School

May 9, 2005

Bill Miller

Chief Executive Officer

“When we think about the future of the world, we always have in mind its being where it would be if it continued to move as we see it moving now. We do not realize that it moves not in a straight line…and that its direction changes constantly.”

- Ludwig Wittgenstein “Culture and Value”

2

“Take as an example the aspects of a triangle. This triangle

can be seen as a triangular hole, as a solid, as a geometrical drawing; as standing on it’s base, as hanging from its apex, as a mountain, as a wedge, as an arrow or a pointer, as an overturned object which is meant to stand on the shorter side of the right angle, as a half parallel- ogram, and as various other things.”

Source: Ludwig Wittgenstein, Philosophical Investigations

3

“I have personally tried to invest money, my client’s and my own, in every single anomaly and predictive result that academics have dreamed up. And I have yet to make a nickel on any of these supposed market inefficiencies. An inefficiency ought to be an exploitable opportunity. If there’s nothing investors can exploit in a systematic way, time in and time out, then it’s very hard to say that information is not being properly incorporated into stock prices. Real money investment strategies don’t produce the results that academic papers say they should.” Richard Roll and Robert J. Shiller, “Comments:

Symposium on Volatility in U.S. and Japanese Stock Markets,” Journal of Applied Corporate Finance, Vol. 5, Issue 1, 1992, 25-29.

4

Fortune’s Year 2000 Guide to Retire Rich

Source: Fortune Magazine, August 14, 2000 *Adjusted for splits** Not including dividends.

July 19, 20007/19/00Price*

Total Investment

12/31/04Price Value**

BroadcomCharles SchwabEnronGenentechMorgan StanleyNokiaNortel NetworksOracleUnivisionViacom

$237$36$73$38$89$54$77$37$57$69

$10,000$10,000$10,000$10,000$10,000$10,000$10,000$10,000$10,000$10,000

$32$12 $0$54$56$16 $3$14$29$37

$1,350$3,333

$0$14,211$6,292$2,963$390

$3,784$5,088$5,362

Total Investment $100,000 $42,773

Percent Loss (57%)

S&P 500 Percent Loss

(18%)

5

DDon’t Believe Everything You Read

Source: The New York Times, February 20,2000; BloombergArticle author Kenneth N. Gilpin asks 10 successful investment professionals to pick one stock they would feel comfortable buying now and holding until Jan. 1, 2010. The 10 investment professionals are John W. Ballen, Laszlo Birinyl, George A. Mairs 3rd, Roger McNamee, Bill Nasgovitz, Bill Miller, Liz Ann Sonders, Justin Thomson, Robert E. Turner and Ralph Wanger.

1999

Return2000

Return2001

Return2002

Return2003

Return2004

Return

Total Return 00-04

Zee Telefilms Ltd. 1610% -75% -62% -12% 55% -22% -84%

JDS Uniphase 830% -48% -79% -72% 47% 20% -96%

Oracle 290% 4% -52% -22% 23% -9% -51%

Nokia 220% -9% -43% -36% 12% 26% -65%

Cisco 131% -29% -53% -28% 85% -5% -64%

Flextronics 115% 24% -16% -66% 81% 14% -40%

Jones Apparel 23% 19% 3% 7% 0% 4% 37%

Medtronic -2% 66% -15% -10% 7% 4% 40%

Waste Management -63% 62% 15% -28% 29% 1% 79%

Henry Schein -70% 160% 7% 22% 50% 8% 423%

Average Performance 308% 17% -30% -25% 39% 4% 18%

S&P 500 Performance 2% -9% -12% -22% 29% 11% -11%

T“10 Stocks for 2010: Buy & Hold Picks From Top Investors”

6

Performance Figures on Total Return Basis*Acquired by MOT 1/5/00. Performance based on owning stock for entire 12 months.

The 10 Uncommon Values® were selected by Lehman Brothers' Investment Policy Committee; each stock was chosen because of its value relative to the opportunity Lehman sees for the company 12 months from today. Every year the Investment Policy Committee reviews each analyst's best idea to arrive at the list of 10 Uncommon Values®. This process has been a fixture at Lehman Brothers.

Symbol Name Subsequent 12 Month

Performance

Prior 12 Month Performance

AOLT

FSRF

GICINTCKLACLLY

MSFTTYC

AOLAT&TFirstarFordGeneral Instrument*IntelKLA TencorEli LillyMicrosoftTyco International

(6)%(43)%(20)%(21)%22%

113%70%35%

(12)%(4)%

297%50%32%-0-

46%59%

134%12%65%47%

Average PerformanceS&P 500

13%7%

74%21%

“Lehman Brothers 10 Uncommon Values® to Own for the Next 12 Months”Stocks Placed on the List 6/30/99

TThe Common “Uncommon” Mistake Investors Make

Performance Figures on Total Return Basis



Performance


ABEASCD

GMSTHWPJNPRLLYMUNT

TLAB

Agilent TechnologiesBEA SystemsCendantGemStar TV GuideHewlett-PackardJuniper Networks Inc.Eli Lilly and CompanyMicron Technology Inc.Nortel NetworksTellabs Inc.

(56)%(38)%39%

(31)%(54)%(79)%(25)%(53)%(87)%(72)%

146%653%(32)%88%60%

498%35%

308%203%

-0-


(46%)(15%)

196%7%






Performance


AABBBYCSCO

CMCSKCEHDI

LMG.AMIRWMWMI

AlcoaBed, Bath & BeyondCISCOComcast Corp.Concord EFSHarley DavidsonAT&T Liberty Media GroupMirantWashington MutualWaste Management

(16%)25%

(25%)(44%)

7%7%

(40%)(79%)

1%(15%)

37%67%

(70%)10%

113%26%

(36%)59%89%77%


(18%)(18%)

37%(14%)



Symbol NameSubsequent 12 Month

Performance


AIGAPOLBBBYCOFHRCKLACMCKPFEWENWY

American International Group, Inc.Apollo Group, Inc.Bed Bath & BeyondCapital One Financial Corp.HealthSouth Corp.KLA-Yencor CorporationMcKesson CorporationPfizer, Inc.Wendy’s International, Inc.Weyerhaeuser Co.

(14)%64%7%

(13)%(97)%

5%7%3%

(24)%(14)%

(23)%45%23%(6)%

(20)%(24)%(9)%

(16)%54%21%


(8)%3%

5%(19)%

“Lehman Brothers 10 Uncommon Values® to Own for the Next 12 Months”Stocks Placed on List 6/26/02




Symbol NameSubsequent 12 Month

Performance


AMGNBR

CSCOEXCHETHPQJBLUNXTLTEVAUSB

Amgen, Inc.Burlington Resources Inc.Cisco Systems, Inc.Exelon Corp.Harrah’s Entertainment, Inc.Hewlett-Packard Co.JetBlue Airways Corp.Nextel Communications, Inc.Teva Pharmaceuticals Industries LtdUS Bancorp

(16)%37%41%18%32%1%

10%58%24%21%

56%38%19%18%

(11)%35%22%

374%74%12%


23%18%

64%3%




Source: Lehman Brothers, Bloomberg



10.2%5.5%

(9.7%)27.9%1.4%

(5.2%)(3.1%)32.0%7.0%

(7.5%)4.8%

54.6%

39%18%


38%50%

(13)%45%24%

108%15%24%75%21%

Cendant Corp.CVS Corp.EchoStar CommunicationsIllinois Tool Works, Inc.MBNA Corp.Phelps Dodge Corp.The Progressive Corp.Teva Pharmaceuticals Industries Ltd.Tyco International Ltd.UnitedHealth Group Inc.

CDCVSDISHITWKRBPD

PGRTEVATYCUNH

Prior 12 Month PerformanceNameSymbol



Source: Lehman Brothers, Bloomberg

Performance6/25/04 – 3/31/05


Return Sector

Rowan Companies, IncScientific-Atlanta, Inc.Schlumberger, LtdPall Corp.Baker-Hughes, Inc.

1367%1045%1032% 919% 856%

EnergyTechnology

EnergyCapital Goods

Energy

Return Sector

Circuit City Stores, Inc.Limited, IncHasbro, Inc.Wal-Mart Stores, Inc.Dillards, Inc. – CL A

8252%6362%5582%4032%3817%

Consumer CyclicalsConsumer CyclicalsConsumer CyclicalsConsumer CyclicalsConsumer Cyclicals

1970s

Return Sector

Dell Computer Corp.EMC Corp.Solectron Corp.Tellabs, Inc.Clear Channel Communications

88918%80577%20537%16332%14326%

TechnologyTechnologyTechnologyTechnology

Consumer Staples

1980s

1990s

Source: Factset, September 20, 200113

TTop 5 Performing Stocks for Each Decade –in S&P 500

“I don’t buy options. Buying options is another way to go to the poorhouse. Someone did a study for the SEC and discovered that 90 percent of all options expire as losses. Well, I figured out that if 90 percent of all long option positions lost money, that meant that 90 percent of all short option positions make money. If I want to use options to be bearish, I sell calls.”

- Jim Rogers

14

Event Probability Outcome Expectation

A 999/1000 $1 $.999

B 1/1000 ($10,000) ($10.00)

Total ($9.001)

Source: Nassim Nicholas Taleb, “Fooled by Randomness”, copyrighted material, 2001

WWhat is the Bet?

15

Gross Value of $1 Invested March 1994-October 1998

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Mar

-94

Jun-

94

Sep-

94

Dec

-94

Mar

-95

Jun-

95

Sep-

95

Dec

-95

Mar

-96

Jun-

96

Sep-

96

Dec

-96

Mar

-97

Jun-

97

Sep-

97

Dec

-97

Mar

-98

Jun-

98

Sep-

98

LTCM

S & P 500

Source: When Genius Failed Roger Lowenstein 2000.

LLong Term Capital Management vs. S&P

16

What We Do:

We buy fractional ownership

interests

in companies at large discounts

to our

assessment of intrinsic business

value.

We invest in them long term.

WWe are value investors

What We Don’t Do:

Buy stocks based on price

relationship

to pure accounting based metrics:

P/E,

Price/Book, Price/Cash Flow.

Trade out of stocks when they reach

some predetermined level based on

those metrics.

WWe are value investors

19 Source: Money, June 2002. Copyright 2002. Used by permission. All rights reserved.

Documents

Legg Mason Capital Management NYU Stern Business School May 9, 2005 Bill Miller Chief Executive Officer