…diversification can be overdone. If you buy a heap of funds or ETFs, you will pay fees on those, and could end up with a return that averages out to the market return. Diversification should be used to reduce idiosyncratic risk, not to add holdings for no specific reason.
I had the pleasure of interviewing Heather Brilliant, CFA,
CEO of Diamond Hill Capital Management, Inc.
Thank you for joining us! Can you tell us the backstory about what brought you to the finance field?
I actually thought I was going to be a lawyer! But I happened upon the corporate finance training program at Bank of America and ended up falling in love with investing. I like how you have to be balanced and understand both sides of a story in order to be a successful investor, but you still have to make a decision and look for ongoing evidence that confirms or refutes your thesis.
Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away from that story?
When I was an analyst at Morningstar, I was an extremely unlikely candidate, on paper, to head the equity research team. Despite that, I applied for the role, and ended up being the successful candidate — managing a team of more than 100 analysts, when previously I had not managed more than 3 people. The lesson is that you have to put your hand up when you are interested in taking on a new challenge — don’t assume your company will know your career aspirations. That lesson ended up being valuable to me at numerous points in my career including those times when I put my hand up and wasn’t chosen.
Are you working on any exciting new projects now? How do you think that will help people?
At Diamond Hill, we have done some work around trying to charge fees that better align outcomes for investors with those of investment managers. We are working to see how we can bring innovative fee structures to the mutual fund industry, where fees based on anything other than assets have been tricky to date. If we succeed, I think we will further improve investing outcomes for people trying to save for retirement, sending their kids to college, and other major personal financial goals.
What do you think makes your company stand out? Can you share a story?
Diamond Hill has an incredible culture that stems from its alignment of interests. Every employee is also a client and a shareholder, something few investment firms have been able to do. Our employees do the right thing for clients and shareholders, partially because they are driven by a sense of purpose and wanting to improve client outcomes. But it’s also partly because even by acting in their own best interests, employees are doing the right thing for our clients and shareholders.
Wall Street and finance used to be an “all white boys club.” This has changed a lot recently. In your opinion, what caused this change?
There has been a lot of research over the past decade or so showing the importance of cognitive diversity in improving outcomes of how groups make complex decisions. I think that helped change a lot of minds, and helped people realize diversity is a business imperative, not just a nice to have.
Of course, despite the progress, we still have a lot more work to do to achieve parity, and according to this report in CNBC, less than 17% of senior positions in investment banks are held by women. In your opinion or experience, what 3 things can be done by individuals, companies and/or society to support this movement going forward?
I agree there is still a lot to be done to improve diversity. There are so many things firms can do to move in the right direction, but I have found three of the most impactful to be: 1 — Improving the pipeline; 2 — Requiring diverse candidate pools; and 3 — Promoting a culture of inclusive leadership. Improving the pipeline relates to encouraging more women, people of color, and people of varied backgrounds to consider careers in financial services. This starts early, with some groups advocating for greater exposure in high school. The second, requiring diverse candidate slates, is something every company can do. We need to push ourselves, the recruiting industry, our HR departments to put forward a diverse pool of candidates for any potential role. Inclusive leadership is about helping our teams understand that we all hold biases, and we need to create teams that encourage different ways of thinking so that when we do add diversity to teams, the team can be successful in embracing those diverse points of view.
According to this report in Fortune, nearly two-thirds of Americans can’t pass a basic test of financial literacy. In your opinion or experience, what is the cause of these unfortunate numbers? If you had the power to make a change, what 3 things would you recommend to improve these numbers?
I think we need to start teaching financial literacy earlier in life, so it becomes more ingrained in how people think about managing their lives. It’s also important for our industry to continue to build trust, so those who don’t have the ability to make their own financial decisions can reliably count on us to help them, and to do it with the client’s best interests in mind. Finally, we need to keep working on eliminating jargon from financial communications, so the information the industry provides is more accessible to more people.
You are a “finance insider”. If you had to advise your adult child about 5 non-intuitive essentials for smart investing what would you say? Can you please give a story or an example for each?
- Over the last decade, passive investing has done really well, and many think that will continue indefinitely. I would tell my child to find an active manager with a great long-term process focused on buying pieces of businesses and stick with active management. I expect it will lead to more protection on the downside when markets weaken and should do consistently well over the long run as the underlying businesses grow.
- Second, invest as early as you can. Compounding is no joke, and while that may be intuitive, the sheer magnitude of difference you can make in your life savings by starting early is often underestimated.
- Third, diversification can be overdone. If you buy a heap of funds or ETFs, you will pay fees on those, and could end up with a return that averages out to the market return. Diversification should be used to reduce idiosyncratic risk, not to add holdings for no specific reason.
- Fourth, trust your intuition. If something tells you an investment opportunity is too good to be true, dig deeper to understand it further or walk away. There are no sure-fire get rich quick methods; investing is about steady, long-term discipline.
- Finally, find an investment manager, or a small handful of managers, you trust and whose philosophy makes sense to you. If you think long term, you will not likely be happy watching your money grow and shrink wildly with more momentum than the market, so find someone who thinks long term to help you.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
There are so many people who have influenced my career, it’s hard to choose just one! I would say Joe Mansueto, the founder of Morningstar, has had a huge amount of influence on my career. He believed in me and gave me opportunities many firms would never have considered, particularly around managing people and running businesses. And while I would like to take that personally, I have seen him do it over and over again, with other employees at Morningstar and also other companies he has been involved with. It’s also really inspiring to look at what he has created in Morningstar out of an idea and some hard work in his one bedroom apartment 35 years ago.
Can you please give us your favorite life lesson quote? Can you share how that was relevant to you in your life?
An Australian leader said, “The behavior you walk past is the behavior you accept.” I think it is a powerful statement about culture, and how leaders within organizations need to set the tone for the culture they want to see develop. If you allow poor behavior just because someone is great at a particular task or job, you are setting your business up to fail in the long run, due to the impact that has on morale of the rest of the team. It’s really important to set high standards of behavior and culture, not just performance and results.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger.
I wish we could find a way to overhaul our health system in the United States. While it does so much good, there is a tremendous amount of waste, inefficiency, and backward incentives built into the system. We need to find a way to make rational financial decisions about something as sensitive as our own health. Many other countries have created models that could work but moving from our current system to a new one feels like a herculean task. If I could start a movement toward a new health system, I would.
Thank you for all of these great insights!