Collection: Mohnish Pabrai - #123 'Unexpected Challenges Before Became A Professional Investor?'



[Transcript]

PROFESSOR YANG 00:00

I’ll ask a follow-up to this, so you sold your IT business –


MOHNISH PABRAI 00:04

Yeah.


PROFESSOR YANG 00:04

– and then you moved into investing. And of course, you know, Pabrai Investment Funds has been successful. I was wondering what you found to be an unexpected challenge that you wouldn’t have expected before you became a professional investor?


MOHNISH PABRAI 00:22

You know, actually it was – I didn’t really find it challenging, what I found very interesting was that – couple of things –


One is that, you know, when I started the funds in 1999, Buffett had ended his partnerships in 1969-1970 almost 30 years and the best that I could tell in 30 years, I didn’t know of anyone who had set up a model just like the Buffett Partnerships in running like with zero fees and 1/4 over 6% and all of that.


And I thought that was kind of strange because I thought that’s a good way to get a competitive advantage because, you know, you’re basically not telling people – You know, the industry works on just asset gathering and fees and all of that and it doesn’t take into account the interest of the investors. So I thought that focusing on giving the investors a good deal would be very good.


What actually ended up happening – so first I thought about the funds as a hobby, I didn’t even think about like trying to scale it. Then when the business got sold and I actually started running it and there was about $2.5 million, we started $1 million with about $2.5 million in a year later. I said no, why don’t – why do I treat this like a stepchild? Why don’t I actually focus on building this business the way Warren built the business.


So and of course there were some issues because the SCC doesn’t allow you to advertise or solicit and all that, so I was always concerned about how am I going to get more investors and such.


And – but then that problem also I figured out a solution, I – you know, I used to have when we first started, we had eight investors when we start with $1 million. And a year later we had 17 investors and of course now it’s a few hundred. But so when we had those eight investors and I remember we had our first annual meeting which was around a conference table and then we went for dinner in my old office in the IT firm.


So I told these guys because that time I decided that we want to scale this firm or fund, but I don’t know how to scale it. So I said look, you have been put on Earth for one reason and the reason you would put on Earth is to bring investors to Pabrai Fund, that is your mission.


And so talk to friends, family and fools and bring them in, you know, and have them contact me because if Jeff contacts his friend and contacts me, that’s fine. I just can’t contact them directly, right?


And the thing is what I learned about humans is that humans are looking for direction, you know, they want to be – they need to be told what to do or like Bill Gates says that even if you are a monopoly you have to ask for the order.


So what I found is that these investors were actually quite happy and then they started introducing me to some of their friends and family and so on. And we started growing and scaling form there. So I didn’t really see much of an issue.


It was a lot of fun actually to try to – in effect I was reliving the Buffett Partnerships about 30 years later. And the real first storm we faced was really about 9 years after that when we hit the financial crisis and that’s when we had Delta Financial go to zero and so on and then had to work through that.


So but I found it a very blissful existence, it was really extremely different from the IT firm I just left with a 170 people because I had just myself and an assistant working 10 hours and that was it. And it was a – afternoon naps and everything else was great, you know, so nothing to complain about.


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

 

[YAPSS Takeaway]