5-Year Anniversary for Diamond Hill International Strategy
Krishna Mohanraj, CFA:
I would say two things. I continue to be surprised at how big the opportunity set is in international. And two, how well our style of investing works in international markets. The first thing that strikes you is how broad our mandate is, we can invest in most countries around the world, we can invest in all sectors, all cap. Just put that together you end up with a huge universe, but you know that's not even the most interesting thing. What's really interesting is that that universe is growing over time. The number of listed companies inside the US is shrinking, but the number of listed companies outside the US is growing over time.
Just take India as an example. India is a country, I think its weight is less than 3% in our benchmark, but it has over 6,000 listed companies and many of them really interesting as investment opportunities. So, clearly the size of the opportunity set is not in question. I think the question for us is what does it mean for us and how we are using it? And on that I feel there's two things I have noticed: there's always something to do for us, you mentioned all these tumultuous times–there is always something for us to look at and as a result, we can say no to a lot of poor ideas. There's always something to look at, it's just the nature of our space, you know, there are so many different stories, controversies, debates at any point that we can always find something interesting to analyze. And the flip side of that is you can say no to a lot of things, which allows us to be selective in what we invest in. And those two things fit in nicely with Diamond Hill’s intrinsic value philosophy. Grady just alluded to two examples where we've been very patient. Because we have so much choice, we can be patient with our names, we can be selective and once you pick something we can have that long-term focus. That's something that we're really excited about.
Ultimately, we're not investing in countries, we're investing in companies, so we look at this broad landscape and we say, “Hey, where can we find these good sustainable businesses where we can predict cash flows for at least five years, if not longer?,” and then we when we find these companies we stay on top of them, we stay close to the management teams, understand what's going on on the ground. And then, when there is an opportunity, when there's a controversy around the country or the market or the sector or specific to that company, we are ready to invest, and once we make the investment we stay patient.
Since we started I think we've probably made investments in over two dozen different countries and, as you mentioned, we've done this through very interesting times you know times when growth stocks did well, times when value stocks recovered, the whole Trump presidency and all its headlines, when oil prices go down violently, then of course we had the pandemic and the recovery. Through all of that we've learned we've built this team and the strategy–it feels like we're just getting started, and the best is ahead and that's what gets me really excited.
I agree with everything Krishna said, but I also I think probably one of the bigger lessons for me or things that I realized is the importance of having an experienced team around you that you can communicate with well, and you can know that they can disagree or agree with your ideas and it’s completely safe and expected for those disagreements to happen and then also having a consistent process the team all believes in because then you know everyone understands–it makes it very simple to get to the point of what needs to happen.
I think you know lately things have seemed pretty easy, as far as the markets and how things are sort of progressing, but I think it's important to reflect back on how we felt in the first quarter of 2020. And it was so important to have a team where if we need to look very close at a business very quickly to make sure that we felt that we weren't going to face permanent impairment of our investors’ capital, we knew that we could have the whole team working on that company and looking at it closely and we also understood if we were looking at a new opportunity we were using an intrinsic value based methodology and we were all thinking about the business in similar ways before we're making a new investment. So I think that is something that certainly when we get into our next market down cycle and crisis and hopefully it's not a health crisis as well, hopefully it's just a market crisis next time around, but when we get into that, I think having that experienced team of five that works well together around a common process, you know, I think that gives us an advantage over organizations that maybe don't have those attributes attached to them.