Entrepreneur Frank Song began his career in the technology investment banking practice of Stifel Financial Corp., an American multinational investment bank with over 7,100 employees globally. There, he executed initial public offerings, mergers and acquisitions, and leverage buyouts.
After leaving Stifel, Frank joined a leading technology-focused private equity firm, which currently holds $9 billion in capital under management, that invests in software and technology-enabled services companies.
Furthermore, Frank Song was one of the top lecturers at UC Berkeley’s Alumni Association, where his lectures on sales, persuasion, psychology, strategy, and negotiation were made available to the prestigious university's 450,000 alumni.
Presently, Frank manages his own capital, specializing in investing and building businesses in what he calls "unsexy markets." At this stage, his holdings are worth over 8 figures.
So, what philosophy did Frank follow to build his investments? Well, Frank chalks his success up to focusing on not losing money, rather than making money.
"When I make investments big or small, most of my focus is on understanding the downside and how many possible ways there are to lose money."
He states, "One of the most important principles to making money is actually to avoid losing money at all cost."
Frank says that, through his experience in the world of investment, he's noticed, "Most people are only focused on the upside and mentally celebrate all the money they'll make before they even make the investment!" This greatly differs from how Frank decides to invest, "When I make investments big or small, most of my focus is on understanding the downside and how many possible ways there are to lose money."
He notes that his reason for doing this is not, "because I'm a pessimist." Rather, it's because of, "a very simple, but practical, reason that comes down to basic mathematics. When you lose money, every single percent of investment loss magnifies how much more difficult it will be to go back to your original balance, let alone make a positive investment return." Frank demonstrates his point with three examples.
He gives the first example, "Let's say you have $100, and you lose 10%, so the value is now worth $90. That means to turn $90 back into your original $100, you will need to make an 11% return.”
Although, “that seems like not such a big deal,” Frank explains, “once you start to lose even more money, the basic laws of mathematics really start to work against you.”
In his second example, Frank illustrates this, “You have $100 again, but this time you lose 25%, so the value is now worth $75. That means to turn $75 back into your original $100, you will need to find an investment to make a 33% return!”
Frank’s final example shows how bad investments can get even worse, “You have $100 again, but this time you lose 50%, so the value is now worth $50. That means to turn $50 back into your original $100, you will need to find an investment that will get you a 100% return on investment!”
Frank drives home how critical it is to avoid losses by asking, “Is it easier to avoid losing 50% or to find an investment that will double in value?” The obvious answer to this question proves, “the real reason why focusing on the downside and avoiding investment losses is the key to building wealth and driving huge investment returns."