My September Letter to Investors

I sent out my latest letter to investors in the Tarpon Folio last weekend. Here’s a snip:

One of the more common questions I got over the summer was with regards to the level of cash inside the portfolio. As I’ve mentioned previously, I assume each of you holds your cash somewhere else – at the bank, for instance, or in a tin can in the backyard. And unlike many mutual fund managers, I can exit or enter most positions in our portfolio very quickly. So I don’t typically feel the need to hold lots of cash in Tarpon. And I wouldn’t have remained fully invested in Tarpon this summer if I didn’t think it would ultimately increase our returns in the long-term. Allow me to explain.

I think my philosophy on cash in the portfolio can best be explained in two words:

Garrett Wittels.

Wittels is a shortstop on the Florida International University baseball team. This spring, he tied Joe DiMaggio’s famous 1941 streak of hitting in 56 consecutive baseball games. FIU’s season ended with Wittels two hits short of the NCAA record of 58 games (set by Robin Ventura at Oklahoma State in 1987, Mr. Trebek). Fortunately, he will get to resume his record-setting attempt next season when he returns to the team as a junior.

Hitting a baseball with any kind of consistency is, to me, one of the most challenging feats in athletics. Of the many factors that explain Wittels’ success, there’s one that seems to be a particularly apt metaphor for investing these days.

As a younger hitter, it turns out Wittels had trouble hitting curve balls. So intimidated was he by the sight of a hard-thrown ball coming directly at him that he’d often scamper right out of the batter’s box before the pitch would break.

After exhausting all other means to break his son of this habit, Wittels’ father, in apparent desperation, decided to build cement walls around three sides of the batter’s box in their backyard. This left Garrett nowhere to go when the curve ball came. And then he began to hit it.

This summer I essentially dragged all of you into a batter’s box with me to wait for the best pitches the market would give us. I imagine to some of you newer investors, watching your accounts may have felt a little like being walled off in a cement batter’s box. But when things aren’t really as bad as the masses believe, holding a lot of cash in a portfolio is like scampering into the dugout. I believe we absolutely have to stand square in the box because – and there’s no other way to say this – the pitcher was out-of-his-mind drunk. Schnockered. Toasted. Blottoed. We were going to see some great pitches. And we did.

Now it certainly got a little wild in there. Balls were sailing all over the place. We got plunked now and again when the wind blew hard. That won’t matter a few years out, though. I’ll take a few on the chin if it means I can keep buying Lowe’s at $20 a share. And I’m pretty sure I can keep waiting for those perfect pitches longer than that pitcher can keep drinking.

Read the whole letter here. And sign up here to receive them via email.

Cale Smith

About Cale Smith

Portfolio Manager at Islamorada Investment Management.
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