In this series of post, I’m going to do the heavy lifting for you and go through tens of hours of Martin Shkreli free finance lessons on Youtube and summarize them in a cliff notes format. This way, you can just get the educational nuggets from the lessons without having to listen to him verbally abuse his listeners.

Why Martin: He’s got a great track record in both entrepreneurship and investing (they’re symbiotic) despite committing fraud and being sentenced 7 years in prison.

Advice From Martin

Before the actual finance portion of the lesson started, Martin gave some career advice for those wanting to trade stocks.

First, you don’t have enough money to trade stocks at the beginning. You need a very large amount of capital to make a good income because you shouldn’t expect returns that will significantly beat the market. Thus, depending on the market to put food in your mouth is not a good idea since you won’t generate enough returns to cover your expenses, let compound.

How then, should one start their trading career? His advice is for people to be advisors instead at the beginning, and take a fee for managing money. This is a much more reliable source of income. I personally disagree with this because I find it immoral. Would you feel comfortable eating a chef’s food that’s never tasted his own cooking? Without skin in the game, there’s a conflict of interest. Also described in Seth Klarman’s Margin Of Safety, you should never have a financial advisor that isn’t invested in the positions he advises.

Nevertheless, it’s Martin’s advice to not have any skin in the game and just take your client’s money.

Basic Variables For Looking At Stocks

In this first of many finance lessons from Martin Shkreli, he lists 6 variables he looks at for every single stock. These are:

• The price per share (P). Also known as the stock price.
• The number of share outstanding (S/O). How many shares there are for trading in the market. This can be found on the SEC’s website by looking up the company name and then looking at their quarterly or annual reports (10-Q or 10-K, respectively). Also can be found by a cursory Google search.
• Market Cap (MC). This is just the share price times number of shares out there AKA P times S/O. The intuition I have behind this is that this is sort of the financial capacitance of a company. The higher the number is, the more the company’s worth (and the harder it is for any individual to move the price).
• Debt (D). This is how much the company has in debt. This can be found looking at the 10-K or 10-Q.
• Cash (C). This is how much liquid cash the company has. Think of this as actual cash + things the company can sell tomorrow. For example, “accounts receivable” can count as cash since that money will most likely arrive to the company’s account by their customers. These tend to operate on NET 60 and where Martin draws the line for what counts as cash. Niche, industrial equipment won’t count as cash since those are very hard to sell and can’t be easily sold tomorrow.

The last variable is enterprise value, which is a bit more complicated. It has this equation, which is just:

EV = MC – C + D

Or, the market cap minus its cash plus debt. The enterprise value is a ballpark of what you’d buy the company for. Intuition:

• We start with the market cap because that’s what where most of the company’s worth is.
• We subtract out the cash, because the cash is just a discount of what you’d buy the company for. As an example, say you wanted to buy a company for $42 billion. And the company has $32 billion sitting in the bank. You’re really only buying it for $10 billion since you can just pocket the $32 billion right after buying the company for $42 billion. Your net out-of-pocket is thusly $10 billion.
• We add the debt, because if you buy the company you’ll be responsible for its debt.

He then bans a bunch of people for asking questions not related to this specific lesson. And that’s about it.

Stay tuned for part 2.