MOHNISH PABRAI 00:07
Yeah, I think that is a very good question. Well I think that – you know, we don't learn anything from success, it's really when we stumble that we learn a lot.
In fact, I'm very grateful every time in my life when I stumbled it has led to growth, can led to learning and stuffs. I think that period from 2007 to 2009 was a wonderful period from a growth and learning perspective.
In fact, we are – I'm reaping a lot of rewards of some of the lessons already. So well, I think one thing that went wrong was humorous so I had gone from – literally from in the entire period of fund when from 1999 to 2007 we never had a down year. Not only did we do 37.2% above fees, we never had negative returns for any single year including that period that we're including the popping of the NASDAQ bubble and all that.
Through all that period we – in fact, that helped us because with all the other stocks that gone undervalued. And so I think there was humorous in a sense that I think there was a – maybe a bit of a built-up of thinking that we couldn't do anything wrong. And the second was that I never at all saw the housing bubble, completely miss seeing that.
And there were investments that I made which in hindsight were very dependent on a functioning financial system. So basically, what happened in 2000, 2008 and 2009 was that the financial system in the US basically were out of oxygen, it just couldn't breathe.
And so, I had companies that were dependent on – in my portfolio, who were dependent on access to capital market, access to financing, access to all that when you just cut that off.
They just went on a tailwind and of course [inaudible] in portfolio. So, we like – in one case, company called Delta Financial we do a $65 million loss, 65 million to zero. You know and another case, we took almost a $40 million loss.
We had on one hand, we had permanent losses in some cases which took us down. In other cases, what happened is the entire market fell out. You know, like I was saying that things get overvalued and undervalued.
We had things that were solid, solid as it is – they were just knock down in price. And the big problem I had in that time was that you know, fully invested. And we had no ability to be offensive to actually go and buy.
The best thing at that time were go and buy, I had no cash. Not only that I not have cash but I have redemption from investors. So I have to raise cash to redeem people. And I basically exiting them in a exiting position which are penny on a dollar.
And so that compounded the problem, So – one basic lesson, cash is king. So one of the reason I put in those rules where return need to be at least 5x or greater for the last 10% of cash. It's that – it's hard to find that's not easy to find.
That's mean we are basically riding with a cushion so most of last year, we were sitting on more than 20% of cash. For example, even now I was sitting just around 10% of cash. And so that's big change. From – literally from the time I started from 1995 till 2007, there were very few periods where we actually held cash. We are always fully invested. So one change remain is a very healthy appreciation for holding cash.
The other change – other two changes I made were I came out with this investment checklist which is a whole different presentation. But basically is very powerful is looking at mistakes other great investors had made and why they made them and whether those mistakes were obvious to spot at the time the investment was made. And in many cases, it is.
It was all messy investments we can get right upfront that there's a problem. And so the checklist has been very useful in catching those. I started having a conversation with another investment manager which is very useful.
And the cash of course has been useful. And – Basically, I think that – Maybe I'll just digress a little bit. You know when one of the biography of Warren Buffett came out. 'The Snowball' written by Alice Schroeder, she said that as a kid when Warren Buffett was a child.
He used to walk in a strange way, he used to walk with his knee kinda somewhat bended and then walking. The reason he did that was to absolutely take out any probability of him falling. Very careful kid, you know not trying to fall.
In fact, the way Warren Buffett pick stocks is the same. He's extremely – spent most of his time on the downside, he looked at how can I lose money. It's when he spent most of his time and energy, not how much money can I made on this. What will cause me to lose money on it? Just like you know, how do I fall down what would cause me fall down?
And so there is much greater appreciation since 2007 or 2009 on the downside so I just spent a lot on checklist that enforces that. But I – you know, question and re-question many many times, how could I lose money on an investment?
And if I can ask you to convince myself that I can. Even then of course, we will be wrong. [Inaudible] so those were some of the lessons.