Money Lessons From Money Mastermind Frank Song

Frank Song, born in Stanford, California, is a financial expert with over 10 years of successful business experience. His resume includes investment banking, private equity, insurance, real estate, and entrepreneurism. Because of Frank’s expertise ranging from consumer finance to corporate finance, we asked him to share his unique advice about mastering money:

1. Focus on avoiding investment losses

Warren Buffet famously said about investing, “Rule #1 is avoid losing money, Rule #2 is to not forget Rule #1.” Frank Song’s number one key to wealth building is similar. He calls avoiding losing money “such an important concept,” explaining, “If you have a portfolio worth $100 and lose 50%, it’s now worth $50. That means in order to make back all your losses and go back to the original $100, you will need to find an investment that will generate you 100% returns, or 2 times your $50.”

Frank concludes his illustration with a question that emphasizes the wisdom of this simple rule, “Is it easier to avoid losing 50% or to find an investment to give you a 100% investment return?”

2. Choose if you want to make money quickly or slowly, but don’t mix the two

Frank’s second tenant of money mastery is choosing one, and only one, investment goal to focus on. Define your objective as either growing returns slowly and steadily, or gaining big returns fast, but do not try to go after both ends at the same time. As Frank puts it, “People run into problems when they try to mix 2 conflicting goals. There is nothing wrong with making money quickly or slowly, but it’s when you try to do both that you end up gaining nothing, and most likely lose money.”

The reason why, according to Frank, is because the two different goals require radically different strategies for success. Frank explains, “If you want to make investment returns slowly, but consistently, then large diversification is important. I would recommend index funds with low fees.” However, making large returns quickly is “a completely different animal.” For instance, “a large amount of diversification is actually an inhibitor to your goal, rather than an ally.” To pull it off successfully, you’ll rather “need to make much more concentrated bets. Instead of investing in dozens or even hundreds of passive investments, you need to invest in 5-20 investments.”

Frank says trimming down your bets is crucial for generating great returns in a short time frame because it is too “difficult to research hundreds of different investments or companies, let alone staying up to date with new information regarding if your investment is still good or not.” He warns, “If you don’t know your investments well, then you will quickly see that one big loss in a short timeframe will really impact your wealth building.” However, with great risk comes great reward, and, “on the other side of the coin, one big gain can really put you ahead.” Frank sums up his advice, “Getting large investment returns fast is a real job and requires a lot of work and research. When you ignore this fact and treat it as if it’s a passive investment, you run into problems.”

3. Use your own brain

Lastly, Frank recommends, “If you don’t understand an investment or how it will make money, then just skip it.” He claims, “There are more ways to get in trouble and lose money when you don’t understand an investment than there are to gain.” In his experience, Frank has noted, “the most common way that people lose money is because they saw others making money or saw a trend and invested.” He points out that, “this usually ends pretty badly.” 

A basic rule to follow is, “If you can’t explain to someone else how this investment works without repeating what someone else told you, then you probably don’t understand it enough, and it’s best to avoid.” Frank advises that it’s important to remember, “Most great investments aren’t complicated, and there are so many options to choose from that makes investing in something you don’t understand or can’t logically explain easiest to just avoid.”