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In This Issue
bullet Cale's Notes: Fear and Greed Revisited.
bullet About the Tarpon Folio: More about our Spoke FundŽ.

Letter to Investors

August 2011 (305) 522-1333

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Cale's Notes

Cale Smith

Dear Investors,

Consider this just a quick update on our August performance. I'll have a more traditional letter to you after the end of September.

In August, the Tarpon Folio declined by 4.7%, compared to a decline of 5.7% in the S&P 500 Index. In its third year, Tarpon is up 4.9% through the end of August, compared to a negative 1.6% return for the benchmark index.

The Gecko Folio declined 2.6% in August, and in its third year is down 0.8% compared to a 4.8% decline in its benchmark over the same period.

The monthly numbers for Tarpon in particular fail to convey the kind of month we really just went through, however. In mid-month, for instance, Tarpon was at one point briefly down 16.6% for the month. The strong rally we saw in Tarpon after that, however, was due to several things, not the least of which was this:

A few days prior to the nadir in the fund's performance, I'd made Clearwire the largest position in Tarpon, with a share price for us of $1.64. By month end, due to a string of developments, Clearwire shares closed at $3.21. In other words, we clawed our way back by notching a 96% return in our largest holding over a few weeks time.

There were probably many lessons learned by investors in August, but if Clearwire is any indication, the one that seems most appropriate is once again Warren Buffett's advice, "Be greedy when others are fearful."

And speaking of Buffett, our performance in Gecko was also aided this month by our purchase of high-yielding preferred shares in Bank of America just days before the Oracle of Omaha struck his own deal with BofA. I believe the investing lesson in that case was," Sometimes it's better to be lucky than good." But I'll take it.

So August, in retrospect, was a gut-check kind of month. Had we been surfing, I'd have said that some days we rode the wave, and some days the wave rode us. But we're still paddling.

We're not out of the woods yet in terms of the economy. Today's unemployment report was miserable but not unexpected, and the situation in Europe warrants continued close watching. The Euro countries seem to be taking slow, covert steps towards fiscal union, which though politically controversial seems pragmatically inevitable. So in the meantime, it's probably best we not let that Clearwire thing go to our heads.

Our companies are still cheap. Valuations will one day matter again. So, as always, we will continue to fight the good fight.

More in a month. Enjoy the long weekend.

- Cale

About The Tarpon Folio

The Tarpon Folio is an innovative, investor-friendly alternative to the traditional actively managed mutual fund. It's built on a model we call a Spoke FundŽ.

It is more transparent, takes more concentrated positions and is significantly less expensive than the vast majority of mutual funds. The portfolio is managed for long-term growth using value investing principles.

Fees are 1.25% of assets annually, assessed on a quarterly basis. Turnover, taxes and trading are minimized in the fund, and investors can customize their accounts in several key ways, including tax preference. Each Tarpon Folio account is also protected by three types of insurance for a maximum of up to $9.0 million

For more information, visit our website.

Here is our privacy policy, our Form ADV and our Fiduciary Oath.


See our performance disclaimer for more. The historical performance data contained above represent performance results as reported by the portfolio listed. The performance results are for illustration purposes only. Historical results are not indicative of future performance. Positive returns are not guaranteed.

Individual results will vary depending on market conditions and investing may cause capital loss. The S&P 500, used for comparison purposes, is significantly less volatile than the holdings of the funds listed. The performance data is net of all fees reflecting the deduction of advisory fees, brokerage commissions and any other client paid expenses. The performance data includes the reinvestment of capital gains.

The publication of this performance data is in no way a solicitation or offer to sell securities or investment advisory services.

© Islamorada Investment Management. All rights reserved.

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