Mi pensis, ke li nur ŝercas, sed mi eraris.

A literal breakdown is:

• Mi = I
• pensis = thought
• ke = that
• li = he
• nur = only / just
• ŝercas = jokes / is joking
• sed = but
• mi = I
• eraris = was mistaken / made a mistake

So the structure is:

• Mi pensis = I thought
• ke li nur ŝercas = that he was just joking
• sed mi eraris = but I was wrong

Ke introduces a clause like English that:

• Mi pensis, ke... = I thought that...

In English, that is often optional:

• I thought he was joking

In Esperanto, ke is normally kept. So Mi pensis li nur ŝercas would sound wrong or at least nonstandard to most learners.

Because the thinking happened in the past.

In Esperanto, -is marks the past tense:

• pensas = thinks / is thinking
• pensis = thought
• pensos = will think

So Mi pensis simply means I thought.

This is a very common question for English speakers.

Esperanto does not force the same kind of tense backshifting that English often does. English says:

• I thought he was joking

But Esperanto can keep the idea as:

• Mi pensis, ke li nur ŝercas.

The present tense ŝercas shows the content of the thought: he is joking. In other words, at that moment, that was what I believed was happening.

So although English uses was joking, Esperanto naturally uses ŝercas here.

It is possible in some contexts, but it changes the nuance.

• ŝercas suggests: I thought he was joking at that time
• ŝercis suggests more: I thought he joked / had been joking, with the action viewed more as past

So in this sentence, ŝercas is the most natural choice if you mean I thought he was just kidding.

Nur means only or just.

Here it modifies the idea of joking:

• li nur ŝercas = he is just joking / he is only joking

Putting nur before the verb is very natural in Esperanto when it limits the action.

Compare:

• li nur ŝercas = he’s just joking
• nur li ŝercas = only he is joking

So placement matters.

Because Esperanto punctuation usually separates clauses quite clearly.

• A comma before ke is standard when it introduces a subordinate clause.
• A comma before sed is also standard when it connects two clauses.

So:

• Mi pensis, ke li nur ŝercas, sed mi eraris.

is normal, careful Esperanto punctuation.

Because Esperanto verbs do not show the subject the way some languages do.

For example:

• eraris only means was wrong / made a mistake
• it does not itself tell you whether the subject is I, you, he, etc.

So Esperanto normally keeps the subject pronoun:

• sed mi eraris = but I was wrong

Leaving out mi would usually sound incomplete in normal prose.

It comes from erari, which means to make a mistake, to be mistaken, or to be wrong.

So:

• mi eraris can mean
  
  • I was wrong
  • I was mistaken
  • I made a mistake

In this sentence, I was wrong or I was mistaken is the most natural English rendering.

The letter ŝ is pronounced like English sh in ship.

So ŝercas is approximately:

• SHER-tsas

A rough breakdown:

• ŝer sounds like sher
• c in Esperanto is always ts
• as sounds like ahs

So:

• ŝercas ≈ SHER-tsahs

Also remember that Esperanto stress usually falls on the second-to-last syllable:

• ŜER-cas