Diamond Hill (DHIL)

Diamond Hill Investment Group (DHIL) is a value-based investment management firm that has a superb track record of beating the market. Its large-cap strategy has outperformed since it began in 2001, even though 92.3% of large-cap investment managers have failed to beat their respective benchmark over the last 15 years. Diamond Hill’s small-cap and small-mid-cap strategies have outperformed since they were started in 2000 and 2005. Yet, most mid-cap managers – 94.8% – and small-cap managers – 95.7% – have failed the same test.

These results have led to significant asset growth – one of the most important metrics for an investment firm – from just over $500 million in 2004 to over $22 billion in 2018 – a 33.5% compound annual growth rate (CAGR).Read More »

Alphabet – Part 1 – Advertising

I’ve been interested in Alphabet for a long while as a potential investment. The business has a number of the most used products in the world, a very wide and deep moat, and earns very strong returns on its invested capital. The hard part for me is getting over the hurdle of paying a high multiple of current earnings for the business.

Alphabet’s products have inherent network effects that have resulted in its current economic moat. It all started with the high-quality search results that Google’s search engine provides. The best search results attracted users. The increase in users brought the advertising dollars. The advertising dollars were used to improve the search engine and the improvements brought more users. That has been Alphabet’s business model with almost all of its products: make an awesome product, make it free, advertise, and improve.

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Thoughts on Corporate Tax Reform

I’ve spent some time thinking about Trump’s proposed tax cuts for corporations and I’m curious as to who will ultimately benefit from them. I should start by saying that I believe the beneficiaries of the tax cuts will vary across companies and industries. Here are my thoughts.

For the most part, I don’t think lower corporate tax rates will end up in the pockets of the owners of companies, except in certain circumstances. The exception, which I will touch on later, will be businesses that have pricing power.

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