Pabrai started his fund by personally guaranteeing his investors money?!

[Steven B]

I read somewhere that he did this, can anyone confirm? How long did he keep that up? What were the terms? All I can say is wow.

[Parsad]

I read somewhere that he did this, can anyone confirm? How long did he keep that up? What were the terms? All I can say is wow.

 

What happened was that Mohnish first started Digital Disruptors...using a value investing framework to invest in technology stocks.  Of course it didn't do well with tech valuations where they were, the bubble bursting, and the fact that the value framework is meant for distressed or mis-priced securities.

 

He felt so bad with the losses his investors suffered, he asked if they would give him a second chance and he would make their money back.  I believe only one investor did not partake, so Mohnish put in a little more of his own money in that partner's place.  I don't know about any guarantees, but he did make it up to his partners and a lot more! 

 

Also, even in the Pabrai Funds, any partner that stayed with him, rather than pulling their money as the fund suffered on separate occasions, are back above water or better...yes, that may not mean much to some if they simply broke even after putting money in at certain peaks in the funds, but at least he didn't shut it down and walk away like most managers do...he hung in there and made it back without reaping any fees.  Cheers!

[Steven B]

Thanks Parsad. I remember reading something along the lines of principal is backed by his personal guarantee and net worth, although can't remember where. What you said makes more sense though.