A Road Map to Wealth from the World’s Best Money Managers © by Peter J. Tanous
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MERTON MILLERS ILLUSTRIOUS ACADEMIC CAREER STARTED AT HARVARD, from which he graduated in 1943. He spent the next few years in Washington, D.C., working at the U.S.Treasury and the Federal Reserve. He earned his Ph.D. from Johns Hopkins in 1952. The following year, he joined Carnegie Tech, in Pittsburgh, where he taught economic history. At Carnegie Tech, Merton Miller first encountered another, somewhat older, economist, Franco Modigliani. Their subsequent collaboration was destined to become part of economic history. Modigliani won the Nobel Prize in EconomicSciences in 1985. In turn, Merton Miller won his in 1990. The product of their collaboration, which was quickly dubbed the M&M theorem, is still widely discussed and argued among economists and corporate finance types. If you thought economists were dull, Merton Miller will change your mind. He has a well-known sense of humor, and well put it to the test. While the M&M theorem is not directlyabout investing in stocks, it does have some very real application to valuing a company. By the time were finished, I think youll agree that everyone interested in the field should know something about it. We ask about his views on market efficiency and investing generally, and we get into areas few people have ever explored with Professor Miller. Here we go. Tanous: How did you first get interestedin stocks? Miller: Well, I dont know, because it was so long ago! They are part of the atmosphere. I was in economics even as an undergraduate. Stocks were part of the environment. How did you get interested in stocks? Tanous: I was an economics major at Georgetown. In my first economics class as a freshman, our professor, Dr. Gunther Ruff, asked the students why they were taking the course. Isaid, because I thought I might learn how to make money. He said, My dear fellow, I have a Ph.D. in economics, and if I knew how to make money, I wouldnt be here.
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Miller: When I started worrying about stocks, it was the late 1930s andearly 1940s and it didnt seem like a good way to make money then, either. Stocks were in bad repute after 1929. A variety of questions were being raised everywhere about the role of the stock market crash in bringing on the depression. There were also congressional hearings and investigations, not only into the crash, but on the role of the corporation in American economic life. The subject of stockswas very much in the news. As an economics undergraduate, I also worked on a part-time basis in Cambridge, Massachusetts, for a company that was advising customers about portfolio decisions, writing reports. So I was constantly exposed to stocks, if only by reading through Moodys and transcribing numbers for the customer reports. As far as personal investing was concerned, I was more concernedwith my savings account than with stocks. Tanous: I guess that was appropriate to the 30s. Miller: Yes, it was. You could get an interest-paying savings account in Harvard Square, providing there wasnt too much activity in your account. I would get my monthly allowance and put it in one of the local banks, making small withdrawals every day to pay expenses. After awhile, I would get a notice fromthe bank saying that there was too much activity in my account and they were closing it out. So, I would walk my money across the street to one of the other banks. There were four of them, one on each corner. I just put the money in the next bank. That way, I managed to have a checking account without paying transaction fees. I didnt feel guilty, because I knew that the banks had gotten the...