Collection: Mohnish Pabrai - #117 'My Biggest Mistake'



[Transcript]

AUDIENCE MEMBER 00:00

My question is what’s your biggest mistake as an investor?


MOHNISH PABRAI 00:06

There’s a lot of mistakes. I think the mistakes are kind of part of the landscape and hopefully they teach us a few things.


I think that if I think about it – I mean I’m trying to figure out exactly how to answer your question in terms of – if I think about it in terms of percentage of net worth that got lost or net worth of the funds and such, I would say probably the biggest mistake was in 2008 or so where we had investment in a mortgage company, Delta Financial and it went bankrupt and we lost $60 odd million, which is about 10% of what we managed. And but you learnt, you know it’s expensive but you learn lessons from that.


And so I think that’s a big one and I think that in the late 90s, 1999 early 2000, I had actually started a private company, it was called Digital Disruptors, and we did some partnerships with brick-and-mortar companies to bring out kind of dot com variants of those companies and that didn’t go anywhere.


You know, so I personally lost about $2 million which was quite a bit of the net worth of that time and I had outside investor that lost about $3 million.


So, but we actually did really well, you know, the thing is that – so that mistake took place in late 99 and early 2000, but those mistakes actually at that time helped us do really well in Pabrai Funds in the early years, because we're able to sidestep a lot of stuff just because of learning.


So I think every time what I have found is that when there are mistakes, if you just look at them carefully, they actually blessings because they’re going to actually make you better and help you get better.


So John Templeton, a great investor used to say that you’re going to be wrong in investing one out of three times, you know, one third of the time going to be wrong. And I think he’s right, so sometimes you can be wrong where you don’t lose money you buy flat line and such, sometimes you might even make money when you’re wrong.


But usually that’s the case and I think even in the case of Warren and Charlie if you look at their record, they have large numbers of mistakes in their record, even though you can see how bright they are.


What’s happened with them which has been really good is that they’ve been right on the large ones, but if you look at the sheer number of investments, there would be a large number of investments they made which didn’t go the way they wanted to go. But the – and some large ones actually they were able to save like Gen Re was a mistake, they were able to kind of salvage that.


So I think the thing is, it's very difficult in the investment business to avoid mistakes. I think you’re going to make mistakes. The key is to keep learning and getting better and over time even with the one-third error rate, with one-third won’t mean that you’re going to south on one-third you might lose something there, you’ll end up with probably a better than average record if you keep at it.


(Source: https://youtu.be/jfxOvdiac94)

 

[YAPSS Takeaway]

Every single mistake is a blessing in disguise. It's hard but learn from it and keep going.