“We Crushed the S&P” Why Seth Cogswell Thinks Investors Are Looking in the Wrong Place

The Strategy That Beat the S&P 500 for Decades

Want to know why one portfolio manager says his strategy “would have crushed” the S&P 500—and why he’s betting big on midcaps while warning the Fed is making the same mistakes over and over? You’ll get the unfiltered answers in the latest episode of AINvest’s Capital & Power podcast, featuring Seth Cogswell of Running Oak Capital.

Cogswell isn’t another Wall Street talking head. He’s the steward of an investing playbook built by his father in the 1970s, tested through booms, busts, bubbles, and bailouts. The “efficient growth” strategy has one aim: compound wealth faster while keeping investors out of the kind of drawdowns that ruin portfolios—and sleep. “Nothing drives performance like earnings growth,” he says, and he’s got four decades of evidence to back it up.

Unlike strategies that look great on paper but crumble in reality, Running Oak has the receipts. Since 1989, Cogswell says the strategy outperformed the S&P 500 by 3–3.5% annually before fees and did it with less than half the average drawdown. Put simply, it beat the index and stressed investors less according to Cogswell. “The great news is we don't have to back test it,” Cogswell tells host Adam Shapiro. “The answer is that it would have crushed it.”

The secret? Discipline. Running Oak’s process isn’t about chasing hype or timing the market. It’s rules-based, targeting companies with proven earnings growth, consistent records, and valuations that stack up better than the broader index. As Cogswell explains, the goal isn’t to scoop up “cheap” names that are cheap for a reason—it’s to find exponential growers that the herd has overlooked.

That discipline has never been more relevant. Cogswell warns that today’s market is dangerously stretched. The ten biggest stocks in the S&P now trade at forward P/Es even richer than the tech bubble. Passive inflows and ETF basket buying have juiced correlations across the board, making it harder to hide when the tide goes out. For him, this sets up a massive opportunity in midcaps—the neglected middle ground that offers growth without the nosebleed valuations.

“Mid cap is the intersection of a couple risk-return asymmetries,” he explains. Over the past 33 years, midcaps have outperformed large caps by 60 basis points annually, and that was during a period when mega-caps had historic dominance. With large caps “100% overvalued” by some measures and midcaps trading cheap, Cogswell believes the setup this time could be explosive.

And he doesn’t sugarcoat the bigger picture. The Fed, he says, has trained investors to expect endless bailouts and cheap money, but the long-term cost is staggering. “I hope that the market struggles. I hope that we are in a recession because… that is what is best for everybody. You can't grow in a healthy manner without pain.” It’s a contrarian stance, but one rooted in his core belief that real growth requires both discipline and discomfort.

Cogswell’s message is simple but sharp: stop chasing momentum, stop hoping the Fed saves you, and start building portfolios that actually compound through good times and bad. It’s not flashy, but it works—and it’s exactly the kind of clarity investors need right now.

If you want to hear how he built a strategy that outperformed for decades, why midcaps may be about to shine, and why he thinks most investors are living in denial, tune in to Capital & Power. This is one episode that might just change the way you invest.