Diamonds Are Forever - Manager Review #3 - Diamond Hill
When you find a stock you like, it is critically important to look at which other investment managers own that stock. The next step is to look at which other stocks the newly discovered manager owns. Then rinse and repeat.
I cannot stress enough how important it is to have a constant supply of new stock ideas to look at.
Last year I was finally beginning to buy into the story of Red Rock Resorts - RRR. It is now one my favorite stocks. That led me to a Columbus, Ohio based manager named Diamond Hill. Their website tells me, “Humility is foundational element to our culture”. I like that, but what I like even more is their Small Cap fund, DHSIX, has made RRR their largest holding. These must be smart folks, let’s see what else they own.
Gates Industrial - GTES - A very boring maker of belts and hoses, but perhaps a very cheap stock. GTES will be “king of the hill” when I start my review of the industrial sector this weekend.
Post Holding - POST - I will eventually get around to the cereal makers stocks, what could be more exciting
Civitas Resources - When I did a quick review of energy stocks, this was near the top of my list. Not sure about Colorado’s tolerance for new drilling.
Ashland - ASH - A boring old chemical company that is restructuring
Rimini Street - RMNI - wow what a neat idea, go read the Seeking Alpha report just posted by a small hedge fund manager
UFP Technologies - UFPT - too late to buy now, but what a cool company. I saw this company present pre-COVID and was very impressed. Very nice that DHSIX caught this stock early.
Seaboard - SEB - every value investors should at least peek at this strange family run agribusiness company
Green Brick Partners - GRBK - I will not chase homebuilders here, but my friend recently became a member of GRBK’s board of director’s so I understand their unique approach
UGI Corp. - UGI - a unique semi-utility that deserves more work
Kirby Corp. - KEX - Diamond Hill also likes another of my favorite stocks, you have got to love a barge stock
US Lime and Minerals - USML - what could be more exciting than a lime producer, the chemical not the fruit, the stock has run too much to buy here
Diamond Hill owns a bunch of interesting stocks. I do not agree with everything they own, but you can tell this is a very research oriented investment manager. They do not own the Wall Street favorites.
If I were I were trying to maximize returns on my model portfolio I would be spending the weekend diving into Rimini Street -RMNI, but I really want to do a review of the industrial stocks first.
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I have spent the last two weeks watching, really listening, to the craziness of CNBC from 6 am to 10am. I put them on in the background as I review SA reports and read company presentations. Here are some observations:
It so easy to get caught up in the constant “macro stuff”. All that gibberish has no effect on how US Lime & Minerals will do over the next 5 years, but it does effect how the stock will perform over the next 6 months. You need to be aware of what is happening, but you cannot let it become a time sink.
Even if you mostly ignore the macro stuff, it is easy to get caught up in quarterly earnings flow. If I owned stocks selling at 25x earnings, I would be watching the quarters like a hawk, trying to quickly find any hint of problems. As a value guy I just do not care, I expect bad quarters, and when they happen I try to build the mental toughness to ignore them.
Jim Cramer is a perfect personification of the average hedge fund manager. He tries to talk the long-term story, but gets too caught up it the short-term results. He is interesting to watch as an example of how not to do things. I appreciate his efforts to be educational, I just disagree with 80% of his content.
Cramer did make an interesting observation. Noting that the big cap tech stocks mostly had slowing revenue growth, but were making numbers by cutting costs, Cramer said: “Big cap tech companies have become like tool and die makers”. He means old industrial companies that had few growth prospects, but could only grow earnings by cutting costs.
What Cramer did not say, because CNBC rating would plunge if they started talking about companies like US Lime all day, was what the great unknown strategist Savita Subramanian said a few days ago:
“buy and hold small cap value”