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Methods of Prosperity newsletter no. 96: Mohnish Pabrai
Sean Allen Fenn
April 17, 2025
“I am a better investor because I am a businessman and I am a better businessman because I am an investor.”
Disclaimer: the author is not a financial adviser. NFA. DYOR.
Key Lessons:
Heads you win, tails you don’t lose much.
You can always go bankrupt.
Money attracts more money.
Generate your own luck.
Have a safety net.
Happy Passover to my friends who celebrate!
Dan and Rich had been hesitant to sell their social network for graphic designers. But they struggled with day-to-day management tasks. All that busy work detracted from their passion for design. With persistence, Andrew persuaded Dan and Rich to sell Dribbble.
Andrew and Chris experienced selling Pixel Union, which made this acquisition relatable. They established Tiny, a holding company, and bought a majority stake in Dribbble for $5.5 million. It was a leveraged buyout that carried personal financial risks. Then they appointed Zack Onisko as Dribbble’s CEO to drive growth. Tiny later reacquired Pixel Union, expanding into e-commerce. Tiny expanded into niche products by acquiring Aeropress.
In 2021 they had a meeting with Charlie Munger. There was talk of a merger between Tiny and The Daily Journal, which Munger owned. Andrew and Chris realized their own ego-driven motivations. Instead of a merger, they helped appoint Steven Myhill-Jones as CEO of The Daily Journal. The main method of prosperity is this. Significant wealth is often achieved through owning subsidiaries under a holding company. Allow for strategic investments and management delegation.
We’re improving quality of life at scale for hard working families.
Inveresta Holdings LLC is seeking capital partners, brokers, and motivated sellers. We don’t need more money. What we’re looking for is to trade up the investors we have for a better class of investor. Accredited investors only. You’re invited to secure your place on our waitlist now. You’ll receive details about our investment strategy.
ⓘ This is not an offer, solicitation of an offer, to buy or sell securities. Past performance is not an indication of future results. Investing involves risk and may result in partial or total loss. Prospective investors should carefully consider investment objectives, risks, charges and expenses, and should consult with a tax or legal adviser before making any investment decision.
Part 96. Mohnish Pabrai.
Go to school, get good grades, go to college, get a high paying job, and you can live an average life. Retire. There’s nothing wrong with that. This is America. You don’t have to take extreme risks to get ahead. We’re already ahead. All you have to do is ride the wave.
If you do start a business, understand that there’s a 97% chance it will fail. But there’s a 3% chance you can live an extraordinary life. With those odds, that 3% chance of success can give you unlimited wealth. Those who never own a business don’t have that chance. Entrepreneurs who become investors create even greater luck for themselves.
Mohnish Pabrai was born on June 12, 1964, in Mumbai, India. His father was a quintessential entrepreneur. His father founded, operated, and sometimes bankrupted or sold multiple businesses. He launched 15 companies, often using high leverage and minimal capital. Which led to financial instability for the family.
“To be a great entrepreneur, one of the first traits you need is to be able to identify offering gaps, some product or service that ought to exist, but does not like Starbucks before Starbucks or McDonald's before McDonald's, and so on. My dad was good at figuring out that; this product should be there, but is not. He was good at identifying these offering gaps. He was also really good at starting businesses from scratch and putting things around them, getting them going, getting teams of great people working with him, and so on.”
“But his downfall was that he was always very aggressive, and he was always over-levered. When the businesses were going, he was taking every last dime of profit coming in and everything that he could borrow, and just pounding into the growth as aggressively as possible. The negative was that when the first headwinds showed up, the businesses had no staying power, and so they would run into trouble. India did not have a venture capital culture. The banks were difficult. Trying to get something out of distress was hard. My brother and I, after we were nine or 10 years old, were on his board of directors. I remember when I was 10 or 11 years old, my dad, my brother, and I would sit down in the evening and we had to figure out how to make the business survive for one more day. All the walls were caving in, everything was going bad, and there were a lot of moving parts. We put our heads together and we try to figure out how to make it last. Then we would make it past the one day and the next night the same thing over. I finished many MBAs by the age of six. At 15 or 16, I do not know why my dad did it, but I am grateful he did. He used to take me on sales calls. Who takes a 15-year-old on a sales call? It just does not fit, but my dad did not care. That was just incredible for me because I was getting to see and learn things. I finished high school in Dubai. I was in Dubai from the age of 16 to 19. In that window of time, my dad had a gold jewelry business. He was manufacturing gold jewelry, and selling it to retail merchants. He is going into cold calling, and I am observing him going into a jewelry store. He does not know them.”
The Pabrai family immigrated to the United States in the 1980s. Mohnish studied engineering at Clemson University. He worked a full-time job at Tellabs while building TransTech, Inc. as a side business. He balanced both commitments by working on TransTech during early mornings (6-8 AM). Then, after work, he’d build his business in the evenings (after 5 PM), and weekends.
This was in 1991. Mohnish started his IT business with $30,000 from his 401(k) and $70,000 in credit card debt.
He transitioned to focusing on TransTech full-time only after securing enough clients. He didn’t take a big risk. He kept a safety net. He negotiated an agreement with Tellabs. Which allowed him to return to his job at a higher salary if TransTech failed.
“I am going to give them just enough.” I am just above firing level, where it is not so bad that they call me in and terminate me. I need to be above that. I did this over nine months, and then I had clients, revenue, and all that, and I went to my boss and his boss and I resigned.”
“I explained to them I was going into my own business which was not comparable with theirs. They said, “Look, when your business fails, not if your business fails, you can come back. We are going to give you more money. We are going to promote you, and you are going to do great.” I thought to myself, “I got my degree. I can look for a job. I can apply for personal bankruptcy, clean everything off, and start over. This is even better. I do not have to look for a job. I get more money.” People have a false mental model. People think entrepreneurs take risks. Entrepreneurs do not take risks. They do everything in their power to minimize risk.”
Pabrai bootstrapped his company to over $20 million in revenue. Kurt Salmon Associates acquired it in October 2000 for $20 million. After taxes and expenses, this left him with $1 million in liquid capital. Which he later invested in public markets. From 1995 to 2005, that million became 13 million. That attracted investors. Pabrai Investment Funds started in 1999 as a hobby.
Today, Mohnish is the Portfolio Manager of the Pabrai Wagons Fund. He’s the Managing Partner of Pabrai Investment Funds. He’s the CEO of Dhandho Funds and its parent, Dhandho Holdings. As of September 30, 2024, Mohnish manages approx. $1 billion. That’s in a private partnership and mutual fund (the Pabrai Wagons Fund). Which includes assets through Dhandho Funds and its affiliated advisor, Dalal Street LLC. Mohnish is an ardent disciple of Warren Buffett.
I like you,
– Sean Allen Fenn
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You can now buy the collectors edition of Methods of Prosperity newsletter number 59. It’s available to collect as of April 10, 2025. If you’re so inclined you can permanently own it!
Methods of Prosperity newsletter is intended to share ideas and build relationships. To become a billionaire, one must first be conditioned to think like a billionaire. To that agenda, this newsletter studies remarkable people in history who demonstrated what to do (and what not to do). Let me know how I can help you out. For more information about the author, please visit seanallenfenn.com/faq.