The first quarter of 2025 represented a significant departure from the market’s calm, fairly consistent march higher since the end of 2022. The S&P 500’s headline decline of 4.3% fails to tell the whole story, as the market started the year with a continued show of strength, advancing by 4.6% through its peak on the 19th of February. Since then, the market has fallen 17% in a month and a half, prompting market observers to note the severity of the decline and flag dubious, attention-grabbing distinctions like “worst week since 2020” and “record two-day wipeout.” The Wall Street Journal couldn’t help but throw fuel on the fire with a recent article titled, “Market Upheaval from Trump’s Tariffs Could Be Just the Beginning.” Or, it could be closer to the end than the beginning. Speculating about the future is just that – speculation.

Each drawdown is painful and feels scary when it happens, and they all have a proximate reason, causing people to think, “How much worse can this situation get?” Today, investors wonder how much the tariffs will weigh on a stretched consumer and also whether other countries will retaliate and make the situation worse, all of which could lead to a recession. This is what decision-making theorist Daniel Kahneman called “the inside view.”

We find it valuable to take “the outside view” on markets. This means that rather than try to figure out how nation states or consumers might behave in response to tariffs, we look at the market’s behavior across its drawdown history over time, regardless of the cause. In this case, the market’s 17% drawdown is already slightly worse than the average intra-year drawdown of 16% since 1928 . Using this framework, a drawdown worsening significantly beyond current levels is certainly possible, but it would likely require significant additional escalations in geopolitical tensions or some unforeseeable issue. Recall that in Trump’s first term, he implemented tariffs in 2018, contributing to a market swoon of 20% at year-end. Monetary policymakers eventually altered course from a tightening cycle to an easing cycle by summer of 2019, but markets had sniffed out the shift ahead of time, recovering all their losses by April of that year. The current tariffs are more severe than those, but that doesn’t necessarily mean the drawdown will be, as any number of things could still happen – other countries could bend the knee, a judge could rule parts of the tariffs illegal, exchange rates continue shifting and the world adapts.

There are too many moving parts of the market to accurately forecast its future, which is why we don’t try; instead, we try to understand how the systems within it work while appreciating that its collective forecasting power exceeds our own. Within that framework, we relentlessly search for ideas that people are likely to pay more for in a few years than they do today, and we use valuation as our primary tool to uncover such opportunities.

If past is any precedent, it would indeed be a surprise to us if within the next 12-18 months, the market did not go on to make a new high, which at time of writing (April 7) implies 21% potential upside from where we sit today. Past performance is no guarantee of future results.

As always, we remain the largest shareholders in our funds, and we appreciate the support and welcome any questions or comments.

Fund Performance

Miller Income Fund (LMCLX) returned -3.81%, underperforming the ICE BofA High Yield Index’s 0.94% total return. Though the fund outperformed the S&P 500 during the quarter, its overweight in equities hurt performance relative to its high-yield benchmark. The most significant changes included eliminating Heidelberg Materials (HEI GY), which reached our estimate for fair value, as well as initiating a big position in Verizon (VZ), partially funded by a trim of the marginally more expensive AT&T (T). We sold Atkore (ATKR), as competitive pressures proved more relentless than anticipated. We also initiated a position in essential government properties landlord Easterly Government Properties (DEA), which had a 10% dividend yield at quarter-end along with strong insider alignment. View fund performance.

Miller Value Partners Appreciation Fund (MVPA) returned -8.94% in the first quarter of 2025, underperforming the S&P 500’s -4.28%. The fund’s smaller capitalization holdings weighed most heavily on performance, with Bitcoin adopter Semler Scientific (SMLR) leading the decline by losing nearly one third of its value. Financials also had a rough quarter, which hurt our performance. Bright spots in the portfolio included Lincoln National (LNC), Centene (C) and AT&T (T). New positions include the former government-sponsored enterprises Fannie Mae (FNMA) and Freddie Mac (FMCC), which appear to have multi-bagger potential if the government succeeds in returning them to private hands. The portfolio realized losses by eliminating its positions in Atkore (ATKR) and Ibotta (IBTA), as both continued to see sustained competitive pressures that were worse than anticipated at time of purchase. View MVPA performance

Miller Value Partners Leverage Fund (MVPL) returned -8.84% in the first quarter, underperforming the S&P 500’s -4.28%. We entered the year in a leveraged position but ended the quarter without leverage as market turmoil caused our signal to flip in the first week of March. View MVPL performance