Bill Miller's fund crushed the market for a record 15 straight years. He told us his strategy for the coronavirus meltdown, calling it 'one of the five great buying opportunities of my lifetime.'

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Investor Bill Miller, co-founder, CIO and fund manager for Miller Value Partners

• Famed investor Bill Miller says investors will be alright if they buy safe, high-quality stocks. But if they want to get the best returns, they'll need look for the companies that have fallen the most and bet on recovery.
• Miller says the broad wipeout in the stock market is one of 'five great buying opportunities' of his adult life, and the first since the Global Financial Crisis.
• Miller, who beat the market for a record 15 years in a row from 1991 to 2005, works by finding companies investors are undervaluing. Today that means he sees reason for optimism about airlines and cruise lines.
• Visit Business Insider's homepage for more stories.

Bill Miller has experienced a handful of market catastrophes during his four-decade investing career. And with the Global Financial Crisis far in the rearview mirror, he's been again thrown for a loop.

"I didn't expect to see another event like this before I retired," Miller told Business Insider in an exclusive interview.

But out of that dramatic 33% market plunge comes another chance for Miller to get to work. He's a legend of value investing, and his Miller Opportunity Fund beat the S&P 500 for 15 consecutive years in the 1990s and 2000s - a record no one has matched. And he says there haven't been many moments like this one.

"This is good a buying opportunity as you're likely to see," he said. "There have been five great buying opportunities in my lifetime."

Those big opportunities came from the market crashes of 1973-74, 1981-82, 1987, 2008-09, and the 33% plunge in stocks over the past few weeks. Miller's fund has underperformed in the last month, which might be expected given his value philosophy and his interest in stocks that investors are failing to appreciate. But he says it fared worse during past market downturns before outperforming when each recovery began.

Miller acknowledges that the speed of the recent plunge is unprecedented, and it's not clear if the market is really on its way back up. But he says that the giant rally over the past three days is shedding light on what a longer-term healing will look like.

"On the other side [of a downturn], the names that always lead are those that are marginal returns on invested capital are most susceptible to decline on the way down, and therefore they will recover the most on the way up," he said. "The more cyclical and the more leveraged you are, the more you went down, the faster you'll recover."

Miller continued: "Those are names that typically have very low P/E ratios, have more economic cyclicality and higher debt leverage, or which significantly underperformed for some idiosyncratic reasons. We've seen that in the last couple of days. Those latter names that I mentioned just killed the rest of the market."

In other words, he says an investor who wants stronger returns should sell the stocks that are holding up relatively well and use the proceeds to buy the worst underperformers. Since Miller's goal is to beat the market and get the best possible return, he argues that some of the traditional safety and "quality" stock strategies taking hold today will work out, but might be relatively disappointing when this is over.

"Those so-called quality names are the names that have done relatively better in this decline," he said. "There's nothing wrong with that advice, but it's also, in my opinion, a prescription for underperforming the overall market."

Opportunities in real estate, airline stocks

In looking for big opportunities, Miller says one hard-hit corner of the real estate market has become appealing and its safety looks assured.

"One of the groups that are really I think the best risk-rewards in the market are these mortgage agency REITs. We're looking at those right now. That's stuff like Annaly and AGNC," he said."You can buy these things that have 15%, 16% secure yield, and they're still down 35%."

Miller explains that the Federal Reserve has built a huge safety net for the companies by injecting more liquidity into the market and announcing it will buy unlimited amounts of mortgage-backed securities.

"The Fed effectively guaranteed the value of their assets," he said.

And he remains bullish on airlines even though Delta and American have both dropped 40% this year. That wiped out most of the price gain he made by investing in American in 2008, while Delta is still up more than 100% since he bought the stock in 2008.

If travel demand recovers, as he believes it will, the existing characteristics of those companies make them good investments. He thinks the same is now true of cruises, arguing that predictions cruise demand will permanently crater aren't borne out by history. And a slow recovery will still be a very profitable one.

"They're not going to come back to it instantaneously, but they don't have to," he said. "Carnival was $50 in January. It was $8, now it's $15. If it takes three or four years to get back to where it was three months ago, you triple your money in three years, and that will certainly beat the market in three years from now."

The second implication of Miller's approach is that defensive investments like consumer staples makers and bond proxies are going to underperform as the economy returns to something like normal. That's especially true because if the US does get back on track later this year, bond yields might jump - making those investments much less appealing.

"If we get those strong quarters, I think the 10-year yield will be double what it is right now," he said. "We would be avoiding those."

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