Finish The Race
Austin Koplan, CPA
In 1983, Australia hosted the inaugural Sydney to Melbourne ultramarathon that stretched a grueling 544 miles. Most participants had trained with a full staff of coaches and sports scientists who prepared for the race with an expectation that it would take around seven days if they ran 18 hours straight and slept for 6. These participants showed up in the latest gear decked out in sponsorships. Mixed in with this group was Cliff Young, a 61-year-old potato farmer who showed up in rainboots and overalls. Most spectators were confused and just assumed he was lost.
When the race kicked off, to no one’s surprise, Young fell to the back of the pack as these professional runners jumped out to an early lead. It wasn’t until the next morning when these runners awoke that they realized what had happened.
Young grew up in a family of poor farmers. They couldn’t afford horses or a four-wheeler, which left Cliff to round up 2,000 sheep across 2,000 acres by foot every time a major storm rolled in. He claimed that he would sometimes have to run those sheep for two or three days in a row. It was this environment that shaped Young’s running style, aptly named the Young Shuffle. The slow pace of the Young Shuffle would never be confused with a run or even a jog, but it was this unique style that allowed him to conserve energy and his decades on the farm that gave him confidence he could cover the distance.
When the runners awoke, they realized that Young had barely slept if at all and now had a commanding lead. Young never relinquished that lead and ultimately went on to finish the race in a time of 5 days, 15 hours, and 4 minutes – beating the second-place participant by 10 hours and the previous record for any run between Sydney and Melbourne by two days.
Over the past few years market behavior appears to have increasingly shifted toward getting rich quick schemes, speculation, and aggressive risk taking. The appeal of investments shuffling along and slowly compounding seems to be out of favor.
The share of S&P 500 index options activity expiring the same day, called 0DTE, hit a peak of 55% in 2024, from under 20% just three years ago. Trading in these options can provide instantaneous returns or tremendous losses within minutes or seconds.
From the first quarter of 2020 to the end of 2021, assets in US thematic funds grew by 3.5x, topping out at $200B in mid-2021. Almost half of this growth was due solely to inflows as investors chased returns on funds like Cathie Wood’s ARKK. Over the last three years, the average dollar invested in thematic funds and ETFs lost ~7% per year, while the average dollar invested in long term-oriented Target-Date 2050 funds gained 6.9% per year.
Leveraged ETFs, which use derivatives to seek magnified gains, grew 46% in 2024 to $137 billion. Of which $20 billion was on single stock funds, up 11-fold. What investors often miss is that these funds are better used as daily hedges and not long-term gains as tracking errors often build in these complex products. Over the last three years QQQ which tracks the Nasdaq 100 Index has returned 9.45% per year. Over this same time, TQQQ, which seeks to generate 3x the daily performance of the Nasdaq 100 Index, has returned -0.43% per year.
Crypto tokens with no utility or underlying value, known as meme coins, have taken off. The most well-known and most successful to date being Dogecoin with a $55 billion market cap, today. Barriers to entry are incredibly low as there is no need to pretend to provide value or generate future cash flows. This explains why Fartcoin has managed to amass a market cap of $1.6 billion. With President Trump launching his own TRUMP coin and commanding a market cap of over $50 billion in a matter of hours from launch, the desire for speculative assets doesn’t appear to be slowing. A $50 billion market cap would make Trump coin larger than 300 companies in the S&P 500 including Delta Air Lines, Kroger, and Ross Stores.
We believe that excessive risk taking, short-term trading, and speculation are antithetical to long-term success. We follow the wise words of famous value investor Tony Deden who said “Our client’s capital represents a lifetime of work and savings. We have the utmost respect for its irreplaceability. Capital is scarce. To accumulate savings requires time, effort, and sacrifice. To keep it is quite difficult.”
When they asked Young what his plan was for the race, he simply replied “to run to the finish line.” I think it’s easy to lose sight of your ultimate goals when you are constantly bombarded with products that are designed to speed up their achievements. It’s even harder when you hear stories of others who have benefitted from these products, at least in the short term. But if the goal is to ultimately finish the race, we still believe the best strategy is slow methodical compounding. The type of compounding that, like Young, won’t stand out over short time frames, but when uninterrupted over long frames can surprise anyone.
The opinions expressed are those of PYAW’s Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward looking statements cannot be guaranteed. This material is for informational use only and should not be considered investment advice. The information discussed herein is not a recommendation to buy or sell a particular security or to invest in any particular sector.
PYA Waltman Capital, LLC (“PYAW”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about PYAW’s investment advisory services can be found in its Form ADV Part 2, which is available upon request. PYA-25-04
