Mohnish Pabrai grew up in India and Dubai as the son of a serial entrepreneur whose businesses repeatedly failed. “I watched my parents losing everything multiple times—and when I say losing everything, I mean not having money to buy groceries tomorrow, not having money to pay the rent,” he says. “The biggest lesson I learned from them is that I didn’t see them get rattled.” These experiences left him with an unusually relaxed attitude to the vicissitudes of life and a gift for relishing the moment. Sitting in his offices in Irvine, California, wearing shorts and a golf shirt, he says: “I have a good ability to adjust to circumstances and to set myself up in a way that is happy for me.”
Pabrai moved to the U.S. as a teenager and studied computer engineering at Clemson University in South Carolina. He took an investment class there and came top by such a wide margin that the professor told him, “You need to be in investing.” Pabrai found the class “super easy” and thought all of the finance students were “dumbasses.” His view at the time was: “Why would I want to go into a field with these losers?” After college, he worked at Tellabs and founded a technology consulting company, which he financed with $70,000 in credit card debt and about $30,000 from his retirement savings account. By 1994, when he was 30, he had saved $1 million. (He later sold the company for $6 million.)
That year, he read about Warren Buffett for the first time and was blown away by his annual returns of 31percent over 44 years. When Pabrai gets excited by a subject, he’s an unstoppable force, drilling into it with obsessive brilliance. He quickly concluded that Buffett’s method of analyzing businesses and buying undervalued stocks was “so powerful” that it was “the only way” to invest. Yet he was puzzled to discover just how few money managers adhered to the “laws of investing” that Buffett had laid out. Countless mutual funds owned hundreds of stocks, many of them trading at ludicrously inflated valuations. “I saw that they were all hosed.”
Pabrai, who describes himself as a “shameless copycat,” decided to invest his savings by “cloning” Buffett’s approach. Not short on confidence, he set himself a target of making 26 percent annually. If he could compound at that rate, his $1 million would double every three years and grow to $1 billion in 30 years. “It’s all a game,” he says. “The driver for me is not to get wealthy…. The driver is to win the game.”
By 1999, he had turned his $1 million into $5 million. That summer, he launched the Pabrai Funds, carefully replicating the structure of the limited partnerships that Buffett managed before creating Berkshire Hathaway. Like Buffett, he spent most of his time reading, thinking, and waiting with “extreme patience” for the perfect pitch. Pabrai won’t buy a stock unless it trades for less than half of what he thinks it’s worth, and “if something is not going to be an obvious double in two or three years, I have no interest.” When he finds a sufficiently mispriced stock, he’s not afraid to place a massive bet that would make most investors nauseous. He generally owns 10 to 12 stocks, and 47 percent of his portfolio is currently staked on just two companies. “Balls to the wall,” he says, laughing with unbridled delight.
So far, Pabrai has hit his target, averaging about 26 percent a year before fees over 19 years. But it’s been a tempestuous journey. During the financial crisis, his funds fell 67 percent and a couple of his stocks went to zero. Still, he looks back on that time with perverse nostalgia because he was able to buy such outrageous bargains. “People were getting freaked out and panicked,” he says. “I was orgasmic.” As Pabrai sees it, an indispensable trait of value investors is “the ability to take pain.” When I ask how he deals with stress, he replies: “I don’t have stress.”
In recent years, Pabrai has shifted a good deal of attention to giving money away, instead of just compounding it. He and his wife, Harina, created the Dakshana Foundation in 2007. It provides intensive coaching to gifted students from poor families, preparing them for the entrance exam to the Indian Institute of Technology. The goal is to catapult them permanently out of poverty by gaining them access to this elite institution. In 2014 alone, 196 “Dakshana scholars” won admission there. Inspired by Buffett, Pabrai intends ultimately to give away almost all of his money, rather than leaving it to his two daughters, Monsoon and Momachi.
At 50, Pabrai has come quite a distance since the days when his parents couldn’t afford groceries. What does his burgeoning fortune mean to him? “Charlie Munger says he doesn’t care about being rich. What he really cares about is having independence. I fully endorse that. What the money gives you is the ability to do what you want to do in the way you want to do it…. And that’s a tremendous benefit.”