This Notion document outlines the investment philosophy and strategies of Martin Shkreli, as gleaned from transcripts of his YouTube livestreams. While controversial, Shkreli's approach offers a unique perspective on investing, emphasizing deep fundamental analysis, contrarian thinking, and a keen awareness of market psychology.

Disclaimer: Shkreli's style is inherently high-risk and not suitable for all investors. This document is for educational purposes only and should not be construed as financial advice. Always conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions.

I. Core Principles: Shkreli's Investment Philosophy

Shkreli's investment philosophy centers around exploiting market inefficiencies and leveraging deep fundamental analysis, often combined with a contrarian approach and an acute awareness of market psychology. This approach is high-risk, high-reward, and requires extensive dedication and expertise.

• Market Inefficiency: Shkreli believes that markets are not always rational, particularly in the short term. This creates opportunities for astute investors to identify mispricings and profit from them. He looks for situations where emotional reactions (fear, greed) drive prices away from underlying value.
• Deep Fundamental Analysis: Shkreli emphasizes the importance of going beyond surface-level metrics and truly understanding a company's core business. This involves meticulous analysis of financial statements, industry dynamics, competitive landscape, and management quality. He believes that hard work and thorough due diligence are essential for success.
• Contrarianism: Shkreli often challenges conventional wisdom and looks for undervalued assets that others have dismissed or overvalued assets caught up in hype. He believes that independent thinking and a willingness to go against the crowd are essential for finding unique investment opportunities.
• Market Psychology: Shkreli recognizes the powerful influence of emotions like fear, greed, and momentum on price movements. He observes market tone, reactions to news, and investor sentiment to identify potential trading opportunities and predict market direction.
• Asymmetric Risk/Reward: Shkreli seeks investments with limited downside and significant upside potential. This often involves shorting companies he believes are overvalued or have flawed business models, while simultaneously investing in undervalued companies with strong fundamentals.
• Conviction-Based Investing: Shkreli sizes his positions based on his confidence level (conviction) in his investment thesis and the perceived risk involved. High conviction, low-risk situations warrant larger positions, while low conviction or high-risk situations call for smaller allocations. Diversification is important, but he's not afraid to make concentrated bets when he has a strong edge.
• Emotional Discipline: Shkreli stresses the importance of avoiding emotional attachment to stocks and being able to admit mistakes. He emphasizes learning from losses and moving on without letting emotions cloud judgment. He's critical of investors who "marry" stocks and hold onto losing positions out of hope or denial.
• Relentless Research and Due Diligence: Shkreli's due diligence process is incredibly thorough. He believes in leaving no stone unturned, spending hundreds of hours researching companies, analyzing data, and talking to experts. He's known for his meticulous attention to detail and his willingness to dig deep to uncover hidden information.
• Adaptability: Shkreli acknowledges that markets are constantly changing. He emphasizes the need for flexibility and a willingness to adjust strategies based on new information and evolving market conditions. He believes that being able to adapt and pivot is crucial for long-term success.

II. Research and Due Diligence Process: Shkreli's Deep Dive

Shkreli's due diligence is remarkably thorough, bordering on obsessive. He emphasizes a deep understanding of the business, going far beyond what's readily available in analyst reports or news articles. His approach is especially data-driven, and he's not afraid to go to unusual lengths to gather information.

A. Financial Statement Analysis: This is the bedrock of Shkreli's approach. He meticulously dissects company financials, looking for inconsistencies, hidden trends, and clues about management's competence.

• Income Statement: Shkreli emphasizes organic revenue growth (excluding acquisitions), dissecting revenue streams to understand their sustainability. He closely examines Cost of Goods Sold (COGS), operating expenses, and operating margins, always skeptical of "one-time" charges that might obscure the true picture. He calculates ratios like gross margin and operating margin, tracking their trends over time.
• Balance Sheet: He scrutinizes cash, debt, accounts receivable, inventory, and property, plant & equipment (PP&E). Calculating Enterprise Value (EV = Market Cap - Cash + Debt) is crucial. He looks for "hidden" assets and liabilities that might not be immediately apparent. He's highly critical of inflated goodwill and intangible assets, preferring tangible assets that represent real value.
• Cash Flow Statement: He examines cash flow from operations (CFO), capital expenditures (CapEx), and free cash flow (FCF = CFO - CapEx). Reconciling net income with actual cash flow is essential for understanding accounting distortions and the real health of the business.
• Multi-year trends, cyclical patterns: Analyzing multi-year trends in revenue, earnings, cash flow, and margins is essential for identifying cyclical patterns, assessing the sustainability of growth, and understanding how the business has performed in different economic environments. He uses Excel to create detailed historical financial models.