Portfolio manager Cale Smith’s riffs on investing, spoke funds, and Islamorada in the Florida Keys.

Here’s a quote highlighted by Warren Buffett during this weekend’s annual meeting in response to a question about derivatives and financial reform. It was written by economist John Maynard Keynes in his influential economic textbook “The General Theory of Employment, Interest and Money.” Back in 1936, mind you. Emphasis mine.

In one of the greatest investment markets in the world, namely, New York, the influence of speculation…is enormous. Even outside the field of finance, Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market. It is rare, one is told, for an American to invest, as many Englishmen still do, “for income”; and he will not readily purchase an investment except in the hope of capital appreciation. This is only another way of saying that, when he purchases an investment, the American is attaching his hopes, not so much to its prospective yield, as to a favourable change in the conventional basis of valuation, i.e. that he is, in the above sense, a speculator.

Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism — which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object.

An entertaining cameo by the Oracle of Omaha. Here’s the backstory.

I had to Google Axl Rose after watching this. Wouldn’t recommend it. Turns out the 80′s were a long time ago.

This is one of my favorite Saturday mornings of the year. Not just because there’s a full moon party at Morada Bay tonight. Warren Buffett’s latest letter to shareholders was released today. It’s a great intro to the business of Berkshire Hathaway, and I’d encourage Tarpon Folio investors to read it. After all, it’s your business, too. I highlighted some of the best quotes below.

On successful investing:

We’ve put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance. In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what that business earns in the succeeding decade or two.

On the bailouts of last year:

In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control. If he’s incapable of handling that job, he should look for other employment. And if he fails at it – with the government thereupon required to step in with funds or guarantees – the financial consequences for him and his board should be severe.

It has not been shareholders who have botched the operations of some of our country’s largest financial institutions. Yet they have borne the burden, with 90% or more of the value of their holdings wiped out in most cases of failure. Collectively, they have lost more than $500 billion in just the four largest financial fiascos of the last two years. To say these owners have been “bailed-out” is to make a mockery of the term.

The CEOs and directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style. It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price – one not reimbursable by the companies they’ve damaged nor by insurance. CEOs and, in many cases, directors have long benefitted from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well.

And, in case you’re wondering – yes, although it looks a bit odd, apparently it is acceptable to spell “benefitted” in the above with two t’s. But I had to Google that to be sure.

Uh, did I mention I get a bit obsessed with these letters?

Anyway, the best quote attributed to Charlie Munger:

Are we supposed to applaud because the dog that fouls our lawn is a Chihuahua rather than a Saint Bernard?

And the closing thought:

At 86 and 79, Charlie and I remain lucky beyond our dreams. We were born in America; had terrific parents who saw that we got good educations; have enjoyed wonderful families and great health; and came equipped with a “business” gene that allows us to prosper in a manner hugely disproportionate to that experienced by many people who contribute as much or more to our society’s well-being. Moreover, we have long had jobs that we love, in which we are helped in countless ways by talented and cheerful associates. Indeed, over the years, our work has become ever more fascinating; no wonder we tap-dance to work. If pushed, we would gladly pay substantial sums to have our jobs (but don’t tell the Comp Committee).

Here’s the letter in its entirety.

And if you’re thinking about going to Omaha for the annual meeting on May 1st, please let me know!