Portfolio manager Cale Smith on investing, Spoke Funds®, and Islamorada in the Florida Keys.

I sent out an abbreviated Letter to Investors late last night. Here it is in its entirety:

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

Here are the answers to the most common questions I’ve been getting about the letter so far:

I made Clearwire a 10% position in Tarpon in the middle of the month. I would have made it bigger, but it started to get away from me.

No, I haven’t sold a share yet. There are not too many times you come across an opportunity like that. It could make for a bumpier short-term to hang on, but it will ultimately prove wise, I believe.

You can sign up to receive my letters directly here. The archive is here.

Disclaimer: This post in no way constitutes investment advice. Same for my Letters to Investors. My investors and I own shares in Clearwire. Commentary on this blog or my emails should never be relied on in making an investment decision.

Here are links to a couple of letters I’ve written and a call I held for my investors during the recent market nuttiness.

Special Edition. My letter to investors from the Sunday night right after the S&P downgrade.

Special Edition Vol. II. Sent late Friday night after the end of that same week.

And here is a transcript of the investor conference call I held on the Thursday before the downgrade.

That call had actually been planned for weeks prior to the dizzying sell-off that same day, and the prices of several of our holdings had gotten beaten up pretty bad in the hours before the call (the same companies brought up in the Q&A). I’d been averaging down all day, and I think the timing of the call turned out to actually be pretty good in terms of being able to share some thoughts real-time from the front lines, so to speak. And the prices of each of those beaten up companies have since come back. So I’d like to think there was another lesson to be learned in there about not blindly following the rest of the lemmings off the cliff. The intrinsic values of our businesses have absolutely nothing to do with CDS spreads in Italy.

On the call I also talked more about our new investment in Clearwire. And based on some recent headlines, I’m not the only one to think shares were too cheap to ignore.

You can sign up to receive my letters directly here.

Disclaimer: This post in no way constitutes investment advice. Same for my Letters to Investors. My investors and I own shares in Clearwire. Commentary on this blog or my emails should never be relied on in making an investment decision.

I sent out my latest Letter to Investors in the Tarpon Folio this weekend. Here’s a link if you’d like to read my thoughts on the debt ceiling, the end of QE2, inflation, interest rates, high gas prices, the property bubble in China, and/or a handful of other topics I’ve been getting emailed about lately. And you can sign up to receive my letters here.

As I mentioned in the letter, I don’t normally put too much emphasis on macro predictions, market volatility, or noise in the media in general. But it’s also easy to get depressed these days if all you hear is headline news. I think it’s important for long-term investors to realize two things in particular during times like this:

1 – Not all market downturns should be avoided. Some represent opportunity. This is one of them.

2 – Things are rarely as bad as you initially fear. Once you truly realize that you can not only handle volatility in the stock market, but do better later because of it, the market will lose its ability to make you anxious.

Also, in reference to my point in the letter about the question of who is going to buy Treasuries once QE2 stops, I thought this was an interesting take from the CEO of Blackrock, the largest asset manager in the world:

BlackRock Inc.’s (BLK) chief executive, Laurence Fink, said Friday that as the Federal Reserve exits its bond-buying program and investors seek to lower their risk, the private sector will move “huge” into U.S. Treasury debt issues.

“Investors are de-risking,” Fink told CNBC in an interview. “They are frightened of the world and all these issues we have in front of us.”

As a result, he said, “Banks are going to be forced to invest in Treasurys.

“As we’re weaned off all this purchasing from the Fed, we see a huge demand from the private sector.”

Fink also said he doesn’t see any need for another round of quantitative easing — the latest Fed buying is known as QE2 — because “we still have positive growth.” The CEO anticipates the U.S. economy to grow by about 2% for all of 2011.

Again, there will be no black hole of demand for Treasuries on July 1st. That’s just silly. Banks are sitting on hundreds of billions.

More in my letter here.

Disclaimer: This post in no way constitutes investment advice. Same for my Letters to Investors. Commentary on this blog or my emails should never be relied on in making an investment decision.