Hopefully still sitting in the drydock, unpurchased, as far as shareholders are concerned. That is the conclusion Daniel Gross comes to, suggesting a new indicator to help predict when a company’s fortunes will take a turn for the worse: the purchase of a yacht by the CEO. Here’s his logic:

When someone who’s supposed to be looking out for public shareholders is instead mulling over wallpaper samples for staterooms, it’s time to sell. The yacht has long been the classic indicator of someone who has so much money that he doesn’t need to make any more. Unlike a jet, which can speed busy executives to their offices efficiently, a yacht has no useful purpose. And who has time to play with such an over-the-top toy? Someone who doesn’t work weekends figuring out how to make money for other people. A classic 1940 investment book, aimed at debunking the practices of Wall Street, was called Where Are the Customers’ Yachts? Today, you should ask: Where are the shareholders’ yachts? If you look at the recent record of CEOs who have become yachtsmen, it’s clear that when they buy a boat, it’s the shareholders who usually get soaked.

Gross makes note of the recent performance of asset management legend Bill Miller, one of the few fund managers to have consistently beaten the S&P 500 over the past 15 years. Second quarter results of the Legg Mason Value Trust fund, which Miller runs, were released earlier this month and show the fund lagging the S&P significantly this year¹. Also noted is Miller’s recent purchase of a huge yacht. Coincidence? Yes, according to Gross; while there is plenty of evidence of serious corporate downturns occurring around the time of yacht purchase, Miller’s record is long and strong enough to be strong evidence of his superior skill as a fund manager.

In the end, the results are less than heartening. The successes in the bunch don’t come close to making up for the disasters. Does the yacht warning mean investors should dump shares in Bill Miller’s Legg Mason Value Trust? No. It’s very difficult for small individual investors to find managers with excellent long-term records. And Miller’s long-term record is still phenomenal. Besides, there are signs that his approach to yacht ownership differs from those of Allen and Perelman. Many gazillionaires are content to see their boats and crew sit idle while they party elsewhere. Miller, according to Barron’s, plans to rent his vessel out for charters. After all, he’s a value investor.

Read more: The CEO bought a yacht? Then it’s time to sell.

[1] A noteworthy excerpt from Bill Miller’s letter to shareholders:

We had a dreadful second calendar quarter. The Value Trust lost 5.67% compared to the market’s fall of 1.44%, for the quarter ending June 30, 2006. Our results, as you may know, bounce around quarter-to-quarter and don’t correlate terribly closely with those of the major indices, nor should they. Our portfolio does not look like the S&P 500 and should not act like it. Deconstructing near-term results has little predictive value in our opinion; the market is too efficient and the results of long-term investment decisions are only evident long-term. We have been doing this a long time and have been here before (way behind the market), but for those who are newer, or nervous, or whose psychological equilibrium is disturbed by non-linearity, some context might be helpful.

(emphasis added)