Lead-Lag Live

Finding the Hidden Gems in Mid-Cap Markets

• Michael A. Gayed, CFA

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Ever wonder why everyone seems to chase the same handful of mega-cap tech stocks? Seth Cogswell of Running Oak challenges this herd mentality with a refreshingly contrarian perspective: the real opportunity lies in investing where others aren't.

This candid conversation explores how market complacency has driven investors to overlook compelling opportunities hiding in plain sight. Seth makes a powerful case for mid-cap stocks, which have actually outperformed large-caps by 60 basis points annually over 33 years—delivering 20% more total return—yet remain undervalued while the S&P 500's largest components trade at extreme premiums.

The discussion delves into today's unprecedented corporate debt landscape, where companies have borrowed heavily just to finance buybacks rather than productive investments. As interest rates rise, we may witness a complete reversal of this trend: companies selling equity to pay down debt, creating significant headwinds for overleveraged firms and their shareholders. Meanwhile, "zombie companies" that survived only through cheap refinancing face an existential threat.

Seth shares the philosophy behind Running Oak's RUNN ETF, explaining why quality factors like lower debt and earnings consistency matter more than ever, and why equal-weighting positions offers both protection and opportunity in today's market environment. You'll gain insights into why historical patterns suggest today's market concentration is anomalous rather than the new normal.

Whether you're concerned about portfolio concentration, seeking undervalued opportunities, or simply want a fresh perspective on navigating today's complex markets, this conversation offers practical wisdom that cuts through the noise. Ready to discover where smart money is quietly positioning for the next market phase? Listen now and reconsider what might be missing from your investment approach.

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Speaker 1:

If you're investing where others are, which implies that you're investing after they invested. Demand drives prices up. If prices go higher, valuations are higher and valuations mean that higher valuations imply that you have lower return potential and higher downside risk, so that's not great. If, on the other hand, you invest where people aren't people have not driven up prices you're getting lower prices, lower valuations, which implies higher return potential, lower downside risk. It also gives you a margin of error, because life is uncertain.

Speaker 2:

This is a sponsor conversation on Leadlag Live with Running Oak. Running Oak is a client, seth is a client, and I'm a fan of the man, the myth, the PM, and hopefully you will be too by the end of this. So, with all that said, my name is Michael Guyette, publisher of the Lead Lag Report. Joining me is Mr Seth Cogswell and I'm going to start off with this really nice image at a little place called the NASDAQ, which I happen to have been at last week. Can we talk about this for a little bit? First of all, this is a real picture. This is not like Photoshopped, right, correct, yep, mid-time swear. So, first of all, what were you doing at the NASDAQ?

Speaker 1:

Well, one of the beauties of working with NASDAQ and using their exchange is they provide a number of different just services to support their ETF managers, and this is one of them. So if there is a really significant announcement, so each time we've hit a major milestone, they've enabled us to put the kind of like a congratulations up there. This was actually one that was just messing around. I think. Ideally, in the long run, my goal is to have a positive impact on as many as possible, which includes just making people hopefully have fun and find things humorous. This is really just me messing around. We are in the process of rebranding, so it was sort of a slight unveiling of the kind of our new logo, our new color palette, which was also exciting. But as we went through that process, one of the things that we discussed was just sort of what Running Oak is, which you know, I found the company out of my pocket, so running out to me, and so it's really a deep dive into what matters most to me and this the idea of us as a long-term relationship just stuck. I thought it was hilarious, especially as far as like dating goes, and and so this was. You know, it was mother's day. It just seemed like the perfect time to do something kind of funny, and so we threw this together. Uh and, but the premise matters a lot to me and that you know, when you invest with someone, you're effectively you've got a relationship, you're relying on them, you're effectively dating and you and our goal is to be a very long-term relationship that can be relied upon for our clients. But I love the idea of dating around making maybe some bad choices, some mistakes, as many do. And so, if you think of the evolution of investing, back in the day, you had these mutual fund managers that were charging huge fees uh, you know, they walk in with their very complicated strategies, they're very impressive bios, and but then they'd fail to deliver, largely because many weren't even trying. They were closet benchmarking and then charging a huge fee, and so they could just sort of sit back. But they'd show up, basically on their harley, they'd look super sexy, and then they'd disappoint. And the evolution, you know, once people realized and they broke up with those managers, they moved on to passive, and passive is largely a an evolution or a response to those managers. But what many miss and that I'm really thinking a lot about as I dig into this more. Actually is one of the reasons why passive has been so effective and there's many positives to passive investing, such as low fees, but one of the reasons why it's been so effective as far as gaining traction is their marketing has been incredible.

Speaker 1:

We don't nobody thinks about passive marketing. We sort of just think of it as this thing that's maybe altruistic and free, except that it's not right. These companies are making tons of money and the thing about passive is, first of all, sure, the numbers look great, which tends to happen when you take statistics and manipulate them a certain way to make a particular story and completely omit certain things that clearly matter, which we could talk about at a later date but the fact is there's really nothing behind the data. Right, the data looks good, partially because that data was chosen to look good. There's nothing behind it, and so you know you think of again dating. You're dating someone that checks all the boxes. I think we probably all dated someone that checked all the boxes only to realize we needed more. There wasn't much behind that that we couldn't really put our finger on. And passive you know there's no one there we couldn't really put our finger on. And passive you know? There's no one there. It's a pass. They're just sitting there with that vacant expression, just looking at you with nothing to say, and if you have a problem, if you need a shoulder to lean on, there's no one there. And so I look at us running oak as the next iteration. Right, so you made your mistakes with active and their fancy bios and whatever else.

Speaker 1:

People, I think, will find that they've made significant mistakes on passive and relying on data. That's incomplete. And we've been here all along. We've been, uh, the strategy, our efficient growth strategy, has been around for, got a 36 year real-time track record now and it's kicked both active and passive butts. Uh, it's just not sexy. It's common sense and and so we've just been waiting. Here, we're the guy. We're the guy next door. We've just been waiting all along, um, and so now you know, um, whenever everyone's ready, we are ready for a long-term relationship and, uh, you firmware, you can bring home to your mother. That's the idea.

Speaker 2:

Your way of bringing a mother into a conversation around markets is very different than mine. When I say you should let your mother know your mother's cousin, twice removed butler's dog walker I think it's the way I frame it. We're definitely going to hit on that. I think this is going to be a well-timed conversation, because there's a lot of concerns around what exactly are you bringing home to your mother now, especially when Bonds, which is sort of the reliable, safe girlfriend or boyfriend, is kind of pruning on everybody, for lack of a better way of saying it. Pruning on everybody for the way of saying it. I want to get your thoughts on the way equities have been responding in the context of another round of carnage in the bond market. Yields have been rising. A lot of people are concerned around the way the cost of capital is acting. I myself happen to think the next move is a Fed hype, and you would think that that's not going to be good for stocks. Let's, let's, let's unpack that the.

Speaker 1:

In my opinion, the market has been wildly irrational for a long time. That's largely driven by those who have more control or more impact on the market being wildly irrational. And you're responsible for a long time. You know if, whenever you invest, you're walking a line between risk and return and if risk is no longer a consideration, or certainly if people are under the illusion that it's no longer a consideration, that changes the decisions that you make. And I don't know. I think we can go back to what the 90s for the fed putt uh, where you know, anytime the market went down, uh, the fed stepped in to support it and then that's only been exacerbated over the last or really ramped up over the last 15 years, where it's no longer the fed putt it's, it's straight up printing money which would have given people heart attacks uh, you know, just before 08. So I think a lot of what's going on in the stock market right now is is complacency. It's driven by the fact that nobody we haven't no one's experienced risk since really 08 or 09. We've had moments in time where the market went down or we experienced risk, but the market then just rocketed back up to new highs and that taught everybody that anytime the market goes down, it goes straight back up. Anytime the market goes down, buy as much as you can because it's only going to go straight up. And if you believe that it's only going to go straight up, you're no longer worried about risk. You no longer have to. That's no longer a factor in your decision-making, and I think that explains the behavior recently as you, you see moments where all of a sudden, the veil is lifted and people are like, oh, wait a second, there is such a thing as risk, and then you know that subsides, maybe due to a tweet, and next thing you know, we're rocketing back up. John Hussman had a tweet or a I guess it's no longer a tweet anymore a post that kind of stuck with me me which was often.

Speaker 1:

Market declines, especially if you go through a bear market, can be very steep and swift, which we saw in april and and then you'll get this rapid rebound and so it's so. It's so swift that people are kind of frozen, they don't want to sell. Then it bounces back up and that confirms that people shouldn kind of frozen. They don't want to sell. Then it bounces back up and that confirms that people shouldn't have sold. But we're still at a lower level, and then you just do that kind of over and over and you can sort of stare, step down, or people will just hold the whole time. I think that right now, what we're seeing is I think it's, I think it's again, I think it's really complacency. I'm trying to think of the definition of complacency.

Speaker 2:

No, no, and actually it's funny. It's funny to use that word because I'm looking at one of the comments from x. So through too much complacency, they will learn. Now, let's, let's play off of that. Um, they will learn, because I think this goes back to the discussion on passive right. It's like if there's complacency, complacency is directly tied to buying passive indices or passive products in general. If you're worried or if there are dislocations, you want to be active.

Speaker 1:

Yeah, or even I mean, if you're really worried, then maybe you're not buying stocks, which right now there's a chart that I don't have readily available. But regardless, the amount of money that retail investors piled into ETFs, equity ETFs, in April was record-breaking. So it's not like you know whether it's active or passive. People are just piling in and the problem is most people are probably piling in and the problem is most people are probably piling into the exact same things, right? So passive indexes, uh, you know the usual suspects of apple, microsoft, amazon, tesla's up. How much is tesla up in the last like month? Uh, 100, I mean, maybe not 100, but it's up a lot. Nvidia has obviously bounced 40% maybe. So it's been a crazy move and a lot of that money has flowed into the things that people kind of ran out of initially.

Speaker 1:

Again, complacency the definition it's basically confidence that's misplaced and a belief in something without really and in overlooking the risks or overlooking certain weaknesses. That's what complacency is. It's, it's confidence to a degree to which you don't see what you're missing, and that describes what we're seeing right now. There's, there's so many, there's. We're seeing right now, there's so many risk factors, there's so many things of uncertainty right now, and yet equity markets are going straight up, so that makes no sense, but it's not the first time we've seen the equity market perform your rational. I think you're absolutely right, though I mean, one of the things that I focus on or talk about a good amount is.

Speaker 1:

One of the areas of focus for our strategy is debt. There's no arguing that more debt doesn't add risk, and as individuals, we know that if we take on too much debt, it's not going to end well. That's the same for small businesses. I have a small business. If I take on too much debt, it's not going to end well. That's the same for small businesses. I have a small business. If I take on too much debt, it's not going to end well. And it's the same for large corporations. And over the last decade, large corporations took on more debt than any time in history, no matter how you measure it, and they didn't do so to build better companies that will be more profitable and be able to service that debt. They largely did it just to buy back stock, and there are some incremental positives to buying back stock, but the problem is it adds risk, especially if you're mortgaging your future to buy back stock Higher interest rates, which we're seeing right now.

Speaker 1:

It's inevitable. If those interest rates continue to go higher even just sit here, all the companies that took on massive amounts of debt and mortgaged their futures to buy back stock. They are going to, at best, have to refinance. That Probably be at higher rates. If it's at higher rates, that hurts profitability. If it hurts profitability, earnings go down and therefore prices need to go down in order to maintain the same PE, which, by the way, are elevated. So if PE goes down and earnings go down, then you'll have an even larger down move.

Speaker 1:

That's best-case scenario. If things stay where they are right now and then if we end up where there's less liquidity and companies aren't able to refinance, what you'll probably see is the exact opposite of what we saw in the last decade, which is how human behavior works, where companies are going to, instead of selling a lot of debt to buy back stock, they're going to have to sell a bunch of stock to buy back debt. That is not good for equity holders of companies with massive amounts of debt. You're going to be diluted. So it'll be the opposite of what we experienced over the last decade.

Speaker 2:

You know I had never actually I never thought of that, but that is a the last decade. You know I had never, actually I never thought of that, but that is a very good point. You could see a total reversal of that dynamic, right. Whereas it was buying stock with debt, now it's the opposite, right? So yeah, the delusion point is real, it's very real.

Speaker 1:

I don't think anybody ever, I've never heard anybody talk about it.

Speaker 2:

No, that's why I'm surprised myself. I was like man.

Speaker 1:

that makes sense, yeah yeah, but also I mean human behavior. That's how human behavior works. That's how emotions work. We go from one extreme to another like a pendulum. We just went from one extreme most debt in history, just to buy back stock likely going to result in the other extreme, which is a whole lot of dilution. And again, that's not worst case scenario, though Worst case scenario, given what's going on in bond markets, is we're going to see a lot of bankruptcy.

Speaker 1:

Companies may not be able to refinance. I mean, one of the common themes over the last decade, because of low interest rates, because of no risk, has been zombie companies. There are so many companies out there that don't even generate enough cash flow To service their debt, and so it's been this massive game of hot potato. Some point that game comes on it and we're I mean it seems like, as you alluded to, we're probably seeing the beginning of the ending of that game. I hope. I actually think everybody wants to see. Everybody thinks that it's un-American To kind of hope for anything other than everything going straight up. I would argue that's absolutely ridiculous and not accurate at all.

Speaker 2:

I'd take it a step further. I'd argue it's un-American to only bet on large cap companies because so much of their revenue comes from international sales, versus more mid cap and small cap companies where it's much more domestically sensitive.

Speaker 1:

Yeah, I mean, there's so many different ways we could take this it's also an American to destroy competition. There's been no antitrust activity. The low interest rates really favored those that had the most cash, so the mega caps, and they could just crush any competition any moment. Anything pops up which is likely killing innovation. So we're not advancing as we should be because of um interest rates, a lack of antitrust activity, the favoring of mega caps. I think, uh, but yeah, I mean, look, small mid, just the entrepreneurial spirit is small and met and that is what has really advanced the us and the world, and the dynamics that we've been experiencing for the last decade are counter to that, which is unfortunate.

Speaker 2:

I love the anti-delusion theme. Now I'm going to have to steal that and roll with it. I'll credit you every now and then. Please credit me.

Speaker 1:

Every now and then. I had a really good idea. The other day I came up with the best birthday present and I got no credit for it. It was a prospectus of run.

Speaker 2:

Was that the gift? It was a it was not.

Speaker 1:

It was not, um, you know, it was uh. Although I did really want to give mothers, I wanted to set up, like this little uh temporary website for people to buy shares of run for their mom, since it's, you know, the strategy you can bring home to your mother. I was told I wasn't allowed to do that, but, um, so it was not that compliance getting in the way of't allowed to do that.

Speaker 2:

But so it was not that Compliance getting in the way of giving something to mom. That's unfortunate, okay. So let's keep pulling on this. You've got this ETF RUNN done really well with it. You and I have talked about your success as far as the AUM growth performance, the story. Oh, that's very strong. I myself very much believe that we, like you believe, are in a cycle that's going to finally favor everything outside of large cap tech. Now you've seen some glimpses of that from an asset allocation perspective. But whether it's higher rates, complacency on the large cap passive side, deregulation as a catalyst, it seems like we're set up for maybe a multi-year cycle of outperformance. I want you to talk through to the audience why mid-caps as a segment of the marketplace look really interesting here.

Speaker 1:

It's funny how obvious it is. It makes me feel ineffective talking about obvious things and feeling like I'm not making progress. Mid-caps have outperformed large cap over the last 33 years by 60 basis points annualized. I actually did the numbers yesterday. That means that over those 33 years mid-cap has provided 20% more return than large cap, which is crazy, because large has destroyed everything over the last decade, but it's midcap has provided 20% more return and nobody owns it. It's crazy. And then you take that one step further. One step further.

Speaker 1:

Ned Davis did some research comparing companies, or we'll say the different asset classes current valuations versus their long-term CAPE ratios. In large cap at least, as of a few months ago, it might even be higher now. Large cap was 100% overvalued relative to their numbers. That means if it drops 50%, it just simply goes back to its long-term mean. That's not wildly bearish. It's just saying if it goes back to where it always has been, so large is supposedly 100% overvalued. Mid-cap is undervalued relative to its long-term mean. So again you've got this asset class that has outperformed meaningfully over the last 33 years and it's the cheapest, and yet nobody owns it.

Speaker 1:

Why that really matters is what really matters is looking forward. How does that impact the decisions that should be made? Or how is this likely to play out? If the market continues to go up, which we were just discussing at some point, by investing in the thing that's outperformed the most and or provided the most value and is undervalued, at some point, some people are going to start investing in it. If you are on the early side of that, that will propel your returns. That'll be awesome. You'll have a nice little tailwind. On the other hand, if the market struggles, you can't sell what you don't own, and so if people want to raise cash, if they're uncomfortable with having 90 of their net worth in the s&p 500 in seven companies basically and they decide they want to raise cash because they're uncomfortable, the big companies are what's going to be sold, mid-cap companies, and even we invest.

Speaker 1:

I don't really focus quite as much on mid-cap because there's the line between mid and large is a made up line anyway, but there's, whether it's mid cap or even the lower large cap companies, which are could be one hundred billion dollars Nobody, very few people, actually own that at all.

Speaker 1:

There are one hundred and fifty billion dollar companies with around a quarter of a percent allocation to the S&P.

Speaker 1:

There are companies that are growing rapidly they're over $100 billion that aren't included in large cap growth ETFs, and so if people become risk averse, if what we just saw just a month ago as far as the market declining and people raise cash, if you're in things that people don't own and they're not selling to raise cash, it makes sense to expect that to outperform and to have significantly less risk. Now, the other thing I'll touch on is interest rates, because we were just talking about that. If interest rates continue to rise, it kind of favors mega caps in a way, because they generate so much cash, they're so big and they were able to get attractive terms on their debt. Now, that said, their valuations are highly dependent upon growth, and higher rates would warrant a lower P, so you'd still expect those to maybe come back to reality a little bit. Higher rates, though, will probably that'll make it difficult on micro, small and even, let's say, smaller mid-cap, whereas the upper mid-cap lower large-cap those should probably do relatively well because they're larger, more stable businesses, in particular for us.

Speaker 1:

As I mentioned earlier, one of the things that we really focus on is debt. So if interest rates go up by investing in companies that have far less debt, that really shouldn't impact us much. Now, if interest rates decline which right now is a little hard to imagine, usually they decline when we're in a recession, which I guess it does seem that we're in a recession, but also interest rates are going up. So we're in this convoluted uh time where I guess really stagflation is seems to probably be the best case. But regardless, if interest rates go down, those usually happen during a recession. That would favor small caps, mid caps the recessions certainly don't favor smaller, more risky companies but particularly what would get really hit in a recession.

Speaker 1:

That's when things come back to reality. That's when the most overcrowded, most overvalued companies decline, not to their long-term mean, but usually right past it. We were just talking about the pendulum earlier. Human behavior goes from one extreme to another, and right now, the biggest companies have historically extreme valuations, certainly for their size, and so that is where those companies could not just go to reality but beyond. And, as you know, again, according to Ned Davis, if those companies or large cap is 100% overvalued, that's where those would decline 50% just to go back to their long term. Whereas if you're in companies that are not overvalued, such as mid cap, such as small cap also, you know there's certain areas where if they go to their long term means they actually go up Right. So while large going to its long-term mean would be a 50% decline, small, mid, other areas would actually have to go up just simply to mean revert.

Speaker 2:

Yeah, and I think big institutional money is going to be more comfortable with mid caps than small caps, like there should be less minds that you can step on small cap is and a very interesting space because that's where you get a whole lot of innovation.

Speaker 1:

Um, you know, one great product can make a massive difference. Uh, it's. It's a really cool space. The problem is, again, because of the last decade, a very large percentage of small cap companies are zombies and should not be alive right now. So I do think there could be a period of I think active small cap could do really well where you're actually selecting companies with strong balance sheets that are doing cool things. That could be a sweet spot. But diversified portfolios, particularly passive, that kind of run the gamut of small cap. I think those will really struggle because such a massive percentage of those companies shouldn't exist. So there will be a period where those are purged, hopefully, because, again, walking dead is un-American. I would say the market going straight up or hoping for reality, that's not un-American. What's un-American is walking dead and those need to die so that that capital could be reallocated to cool things that are in great, great companies and great products.

Speaker 2:

I'm glad you frame it like that, because I think people get so stuck on just the return potential in terms of their personal portfolios, not in terms of the efficiency of capital for the system. Right, and you want the system to be more efficient, which means you don't want the zombie companies. And you want the system to be more efficient, which means you don't want the zombie companies. You want money to be funneled where it's going to be best treated, which is not necessarily based on what maybe some retail are meaning at a moment in time. It's about the company, it's not about stocks. No, I think that's very well articulated. When it comes to run itself, let's talk about the screening mechanism a little bit more. You mentioned debt. Quality is a big component of this. We should define quality for the audience. How do we think about quality investing?

Speaker 1:

There are a lot of different definitions, but I'd say they largely rhyme and they're pretty obvious. It's basically just companies. When you look at their balance sheets, they make sense and they're conservative, so the big one that really stands out to me is just simply less debt. Again, too much debt leads to problems, and quality you could certainly argue a problematic balance sheet is not quality. So the other thing is earnings consistency. That's another factor that many look at. That's something that we look at as well, so you mentioned our criteria, or sort of our process.

Speaker 1:

Our goal is to maximize earnings growth, because nothing drives price performance like earnings growth. We're all doing this to make our clients more money and invest in clients' assets in companies that are growing and creating more wealth, which flows back to their investors. That's a good way to create wealth for our clients. The second, though, is being very disciplined around valuations, and I'd say that's certainly on the sell side. That's our biggest differentiator. It does not make sense to hold an asset that should go down Right now. There's a lot of money in companies where valuations do not make sense, and I'm actually personally a little excited about it because at some point, I'm actually personally a little excited about it because at some point our clients will realize the benefit of avoiding those companies. I think you know what is Tesla's PE now? Hundred and ninety, I don't. I don't know what they have to do to justify that.

Speaker 2:

It's Musk man and he's doing the economy more you know he's doing the.

Speaker 1:

It's crazy, but I mean even Apple. I haven't looked recently, I think their P's it's in the 30s, probably maybe up to 34, 35, given the rise in the market, apple for a very long time traded a P of 13. And when it did it had a ton of cash and considerable growth. Now it has little to no growth and we'll see how tariffs play out. That maybe as negative growth.

Speaker 1:

Um, in as no cash, it generates a lot of cash, so I'm not worried about going bankrupt. But it actually back in the day, I think maybe a quarter of its balance sheet, maybe even a third, was cash and now it has a negative net cash position and then it has more debt than cash. But yet it's trading at like two and a half, two and a half times its long-term valuation. And I love apple, but that doesn't make any sense. Um, and the problem is that's probably the biggest holding for most people. Many might not even be aware of it because their 401ks are just sort of automatically invested into target date funds that just invest more into index funds.

Speaker 1:

So that's definitely a concern, but again, our criteria are focused on maximizing earnings growth, discipline around valuations because you don't want to hold something that should go down and overarching focus on lower downside risk, because nothing derails exponential growth, which is what we're all shooting for right. We're trying to provide growth to our clients. They've worked very hard for a long time. We're trying to help them grow what they've worked to accumulate so that they can retire or live the lives they want. Nothing derails that like a major drawdown, and so again, whether it's debt or other risk factors, that'll have a considerable impact on the clients over the long run.

Speaker 2:

Let's talk about on-run RUNN, your ETF, the weighting, Because quality is also, I think, to some extent relative to the sector and you can rank things in different ways. There's factor-based weighting, there's market cap weighting. Let's talk about the weighting for run.

Speaker 1:

Run is equally weighted as far as the holdings go. Yeah, what's funny is equal weighting became a dirty word. If you use a hyphen, otherwise it's two words, but either way it became a dirty phrase. I remember, maybe a decade ago, when I was in business school and we were looking at different weightings and at that time, equally weighted portfolios had outperformed their cap weighted portfolio, cap weighted counterparts every single rolling decade in history. Now, at this point, this is the one time, or the last decade or you know 12 years, where that hasn't been the case. But every other time in history equally weighting was the way to go, the reason being markets are noisy, there's whether it's emotions or who knows what things go up and down and equal weighting puts mean reversion in your favor. So you're basically that noise actually benefits you Over the last decade because momentum was so hot. Last year, momentum hit the 99.8th percentile in history, so the hottest time ever, other than maybe the tech bowl, is a close, close tie, and that momentum was due to complacency, uh, just piling into the same things over and over, um, and that favored cap-weighted indexes.

Speaker 1:

But again, historically equal weighting has always been the place to be. There's no reason to think that if it's always been the place to be, other than one anomaly, which just happens to be very recently, that it won't continue to be the place to be. But one of the reasons why we favor equal weighting is because we have absolute conviction in the investment philosophy we provide clients of higher earnings, growth, tracked evaluations, lower downside risk. We don't have a ton of conviction in the individual companies. There's just more uncertainty there. But if we can maintain an average across the portfolio, then we believe that it will deliver value, whether it's higher return, lower risk, likely both by equally weighting. That enables us to basically hedge our bets. We're not taking any crazy bets on one company which could certainly. Maybe it works out, maybe it doesn't. By equal weighting we play the numbers.

Speaker 2:

Yeah, and it's funny if you look at equal weighting strategies whether they're active or passive, against market cap weighting, it looks like the ratio relative strength is improving. So, yeah, it could be a good era for that as a style of portfolio construction.

Speaker 1:

Yeah, it could be a good era for that as a style of portfolio construction. Maybe for the last few minutes, seth, make the pitch for using run versus something like an S&P 400 mid-cap passive product and where people can learn more. And I just read our most recent newsletter and kind of focused on this is the idea of investing where others aren't. It's a pretty simple idea, but I never hear anyone talk about it and, frankly, I hadn't really thought too much about it. But if you really give it some thought, it's extremely compelling. Invest where others aren't.

Speaker 1:

If you're investing where others are, which implies that you're investing after they invested, demand drives prices up. If prices go higher, valuations are higher and valuations mean that higher valuations imply that you have lower return potential and higher downside risk, so that's not great. So, again, investing where people are implies higher prices, higher valuations, lower return, higher risk. If, on the other hand, you invest where people aren't people have not driven up prices You're getting lower prices, lower valuations, which implies higher return potential, lower downside risk. It also gives you a margin of error because life is uncertain. So it's really a no-brainer.

Speaker 1:

And the beauty of it going forward is if you invest where people aren't and you do so for a compelling reason. That's the other thing. You don't want to invest in a company that should be bankrupt tomorrow. There's a reason why nobody's investing in it. But if you invest in an excellent investment that others aren't invested in, at some point, if people see the error in their ways, that will propel your returns. That'll be a nice tailwind. On the other hand, on the flip side, if the market struggles, you can't sell what you don't own. So if you invest where people aren't, there aren't people there to sell what you bought, and so that should provide a pretty significant again, margin of error or downside protection. It's a very simple concept, but I never hear anyone speak about it and it's incredibly simple and compelling. It's so obvious. It obvious, it's, it's uh, it's such a win-win where, if you invest where people aren't, you get more upside, less downside.

Speaker 1:

That's it, and that's exactly what we're all looking for. As far as finding running Oak or run uh, I welcome emails. Seth at runningoakcom. I'd love to speak with you. Otherwise, you can go to our website, runningoakcom or runningoaketfscom, also on LinkedIn. So please reach out.

Speaker 2:

Appreciate those that watch this and those that added some comments. Make sure you also follow Seth on X, as I do. I've said he's one of the greats and I think I got you a few followers when I said that.

Speaker 1:

Yep, yep. I appreciate that.

Speaker 2:

I guess I have some influence on that and thank you for watching. Cheers everybody, Thank you.

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Michael A. Gayed, CFA

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