I'm pleased to report that from the beginning of its fourth
year in November 2011 through the end of March, the Tarpon
Folio has increased 33.9%, compared to a rise of 16.8% in the
S&P 500 over the same period.
The year is off to a good start for us. We've seen two
Tarpon Folio holdings, Jefferies Group and Global Ship Lease,
each increase 85% over the last four months. Better yet, we've
still got room to run. Our newest holding Ultra Petroleum is so
cheap that I have to go lay down after I check its quote.
I remain cautiously optimistic about 2012. The valuations of
our companies remain very attractive, underlying economic
trends are good, and recent employment gains should provide a
further boost to the economy this year, as it seems businesses
are finally getting serious about investing in their own
That said, it's probably best to emotionally prepare
yourself for some short-term headwinds in the broader stock
market. Not because of any disturbing overt developments, mind
you, but just because it's best not to get too caught up in any
market rallies, this one included. The stock market also just
notched its best first quarter since 1998, so if nothing else,
the coming quarter will no doubt feel a bit subdued in
While none of the potential issues I'm keeping an eye on
will impact the values of our companies, they could temporarily
impact their stock prices. So should market sentiment swing
again from “unabashedly bullish” to
“Mayan-apocalyptic,“ I'd ask you to keep that
distinction between price and value in mind.
Potential short-term headwinds include things like first
quarter corporate earnings, which companies start to report
next week. The bar for those earnings is pretty high. Corporate
profits grew 9% in the last quarter of 2011, which is worthy of
mention only because any growth rate less than that will likely
be interpreted by a breathless media as a
“slowdown.” The reality is that earnings will
likely still be good, just growing at a slower rate - because
of some difficult prior quarter comparisons in a handful of
industries and things like the impact on earnings of a reversal
in exchange rates. You know, real edge-of-your-seat kind of
Also, consider yourself unsurprised if the economy looks
temporarily weak in the first quarter GDP number that comes out
at the end of April. That will be another superficial issue to
me, however, in that a soft number will be due in large part to
weakness in temporary things like government spending and the
balance of trade.
Anyway, enough macro. My point is that the bears could soon
come out of their caves, whether due to overblown concerns
about first quarter earnings, relatively tepid first quarter
GDP growth, or Spanish bond yields.
What would that mean for us? Operations normal, really. The
long-term fundamentals haven't changed, and neither have my own
long-term views. Our companies still appear very attractive and
their future earnings should support further gains in stock
price. It's just going to take some time, and there will be
bumps along the way.
So despite the potential for some mild near-term headwinds
in the stock market, the economy is continuing to slowly
improve. As long as that is happening, it seems other investors
are realizing that valuations for many companies are still too
low. This is good for us. After this recent rally, we also now
have more cash in the portfolio than usual, so we can better
take advantage of any future declines in stock prices, whatever
Finally, a bit of administrivia. I will be making a few
changes to these letters in the near future, so my next letter
to you will be after the second quarter ends in June. As usual,
call or email anytime in the interim.
And once a year, within 120 days of the end of IIM's fiscal
year, I'm required to deliver to you a free updated Form ADV 2A
brochure. So, please consider this your official notice that you may
find that PDF here at this link.
Thank you and enjoy the holiday weekend.