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Seven Corners Capital, Day One

July 30, 2016

 

Welcome to Seven Corners Capital Management's website. Thanks for visiting! This post describes our (and my) story.

 

Yours truly, Scott Klarquist, the founder of Seven Corners, was formerly a corporate lawyer at several different Biglaw firms in New York, the last one being Dentons LLP (I graduated from the University of Virginia School of Law in the early Aughts). Back in the fall of 2007 I noticed that, as a consequence of letting my paychecks pile up in the bank earning just a few percent per year, I had a fairly sizeable nest egg which was not being put to work. Being a do-it-yourself personality (and perhaps just a little overconfident), I decided to invest it myself--doing the research in my spare time--instead of just putting it all into an index fund or a mutual fund. After all, how hard could it really be? And so I went in with both feet just as the economy was about to crash. Well, that was certainly great timing!

 

You can probably guess the end of the story (or at least the end of the beginning). By the end of 2008 I had seen about 40% of my wealth vaporized (I did slightly worse than the S&P 500 that year). But, importantly, I had discovered Warren Buffett and what's known as "value investing" (or buying securities for less than they are intrinsically worth). Strangely enough, this value investing stuff seemed to actually work, as I discovered in the waning months of 2008--and thus I was not discouraged. By the end of 2009 I had recouped all of my previous year's losses and felt that I was off to the races.

 

By 2013, having had my fill of working in the legal world and saved up enough money to go out on my own, I decided to give investing a try as a full-time endeavor. The plan was to emulate Buffett and his early partnership days. (Back in the late 1950s, Buffett had returned to Omaha after working for Ben Graham for a few years in New York. By then, he had saved up enough money to support himself and his family. Being a certified investment genius, he felt comfortable handling investments for his friends and relatives as well, and thus the Buffett Partnership was born.) Granted, I am no genius and I highly doubt there will ever be another Buffett, but I believe that he and others have shown that is possible to consistently outperform the market, at least when investing relatively small sums (under $100 million).

 

As Buffett himself has stated (and fortunately for me), in investing it's not the guy (or girl) with the highest IQ that wins, it's the person who is smart yet stays within his or her circle of competence. In other words, in investing it's far better to have an IQ of 140 and think it's 135 than to have an IQ of 150 and think it's 160. Buffett beat the market by 20% per annum over a 12 year stretch, but just doing half as well as that (beating the S&P by 10% per year) would put an investor into the Graham & Dodd Hall of Fame.

 

This is best illustrated by the power of compounding. Say you put $10,000 in a S&P 500 index fund for 20 years and earn a 6% annual return plus a 2% dividend yield, or 8% in total (ignoring fees and taxes for the sake of this example). If you reinvest all dividends, you would end up with $46,600 at the end of 20 years. Now let's assume you are able to beat the S&P 500 by 8% by expert stock picking (or 16% per annum including dividends). In that case (and again assuming you reinvest capital gains and dividends) you would end up with $194,600 after 20 years, more than 4X what you would get in the S&P 500. And if you can beat the S&P 500 by 15% per year? You would end up with a nifty $628,200, or over 13X the S&P 500's return. A little extra return goes a long way, thanks to what Buffett labelled the "Joys of Compounding".

 

So to make a long story short(er), after a few years of making investments full-time with my own money (and learning some painful but valuable lessons along the way), in 2016 I felt ready to "go pro", as it were. Hence, I formed Seven Corners. (As a side note, the name of the firm derives from a region in Northern Virginia close to where I was raised. Moreover, seven is considered a lucky number, something to keep in mind when deciding to take on the investing gods. Luck (preferably of the "good" variety) is welcome at Seven Corners any day!

 

Seven Corners' goal is to provide professional quality research and share the same with the investment community. Sharing our best ideas and getting feedback on them improves the investment process and should lead to better outcomes (both for ourselves and those who read and constructively criticize our research). We intend to regularly publish our latest investment theses and due diligence and disseminate the same into the community of like-minded investors.


We hope you enjoy our published investment theses and diligence. If you do, please note that we also wish to begin managing money for outside investors using a managed account structure. While, there are many rules and regulations governing how this must be done (for instance, normally only accredited investors can hire a fund to manage their personal money), if you are interested in discussing having Seven Corners manage your money, we would love to hear from you. Please do not hesitate to contact us!

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