Okay, so now with that being said, let's go to a new concept that I want to teach. So I want to give you sort of an introduction to Wall Street, and this is only two slides, so it's not going to be too in-depth, but I think a lot of people are not familiar with this.

So we're going to sort of define Wall Street in a picture style, and this may not be a complete, complete diagram of Wall Street, but I think it's pretty good.

And we're going to segment Wall Street into two parts: the buy side, or we'll just call them investors, and then the other side is the sell side.

A better word for it is just saying investment banks. I think the whole buy side, sell side names are a little silly.

I just like to say these are investors and these are investment banks. Investment banks service the investors; they're basically service providers.

Um, so in any event, there's a few different kinds of investors, and we went over this a little bit: mutual funds like Fidelity, Wellington, State Street, Platinum Capital Research.

And then there's hedge funds like Renaissance, Och-Ziff, Citadel, Millennium, Oaktree, AQR. These aren't the only two kinds of investors.

There's plenty of other people. In fact, I should add individuals, the most important thing of all. So pension funds, insurance companies, Corporate America, sovereign wealth, individuals, all of these folks in aggregate manage just as much, if not more, than the mutual funds, who manage quite a bit more than the hedge funds.

The investment bank side is a little bit different. So you've got Investment Banking, which is where most of the money is made, most of the money is made.

And these are investment banks. These are—here's a partial list of investment banks: Bank of America, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley, RBC, and Wells Fargo.

Those are a few investment banks. And what they do is they'll lend to companies.

They'll arrange lending, and that involves often underwriting, which is the process of selling the security to the public or to investors. So they sell your company's security.

Let's say you're IBM, you want to sell $6 billion of debt. Well, you would have to hire one of these banks to do that.

You couldn't just go out there and say, "I'm just going to sell it myself." It doesn't work that way. You need a bank, a bank that has relationships with all of these investors.

You might want to buy another company, so do you need M&A advice? Um, and that is useful.

So, Investment Banking is a is a pretty big part of these companies, these investment banks' profits. The other thing that they do that is profitable is they um, do different services for these investors.

So they'll actually conduct trades, or they'll prime brokerage or broker their money or deposit their money for them and clear their trades and things like that.

Then finally, these banks issue securities research. They give buy and sell recommendations on securities.

And these are generally not considered or thought through too heavily. Every now and then, one out of a hundred maybe of these sell-side securities analysts will be useful, but in general, they're pretty biased due to the conflict of interest that exists with Investment Banking, despite the rules that exist to separate those two, despite that.

In any event, one of the things I wanted to say, one of the things that took a long time for me to learn and was very painful for me to learn is that when it comes to stock recommendations.

They're never worth listening to. They're always worth ignoring, no matter who, no matter who they come from, including Warren Buffett or Carl Icahn.

I think stock recommendations are worthless, uh, in many ways. Now, they're not completely worthless. Obviously, there can be good stock picks from people, but I think that you should spend your time more efficiently researching yourself.

I would not look, the first thing I would definitely would not look at is investment bank opinions.

Then I certainly wouldn't look at other investors' opinions or their holdings. You can look up an investment fund's holdings.

I, I would, I would worry about learning securities by yourself and learning lateral skills. I would definitely not spend my time looking at other people's opinions.

It's not that they're completely worthless; it's that you want to win at the game of your own time.

You want to bet on yourself and short everyone else, and the long-short game of your time is the most valuable thing you have. And listening to other people and thinking about other people's stock picks is not going to get you very far, in my humble opinion.

And I used to think carefully about the markets, uh, and their other people's investments and, and I certainly didn't do very well when I did that, and I started to do much better when I thought for myself.

So, in any event, that's sort of what I'm thinking about there. Lateral skills are things like, well, if you're looking at, like, for example, what I did: I was a pharmaceutical investor.

So instead of spending my time worried about what other pharmaceutical investors were doing, I learned a lateral skill of pharmacology.

I studied deeply in fields like pharmacology and medicinal chemistry and, and, you know, other areas, just general preclinical science.

And these were important to me. It helped me be a better pharm investor.

When it came time to be an entrepreneur, these skills came in handy. These these skills came in handy. So it it was uh it was much better for me to spend my time doing this than it was to worry about 13F filings or being on the phone all day talking to other investors, watching CNBC.

All of this was a was not you you're not not completely useless, but relative to what I could spend my time on, remember, I only have 24 hours in a day, so all of this was comparatively useless.

This was stuff that people didn't know, that people couldn't match with the skill of investing. This is just garbage comparatively. Now I know there's plenty of people that do this who are quite successful, but this is just my tips for success.

So in any event, um those that's a it only took 10 minutes, but I think there's a lot of information crammed in there.

And so one of the things that we're going to do, um, you know, we've been looking at the technology industry for a little bit, and one of the things we're going to do is try to fixate on one sub-sector.

And by the end of today, by the end of today, we're going to pick one and we're going to pick one by vote.

We're not going to pick one based on my own opinion. We're going to pick one but by your guys's opinion. But before we do that, we're going to go run through a couple more tech companies.

And one of the big big sub-sectors we have to look That of course is telecom.

It's up to us. We're going to pick one sub-sector. Tech is so large, it's kind of hard to look at all of it.

In fact, I know companies that have 20 or 30 investment analysts that want to cover the technology industry.

And that that takes a lot of a lot of firepower. So for us, we're going to actually just stick to one of these sub- sectors.

I don't know if it's going to be software or semiconductors or hardware or internet or what, but we're going to pick one at some point.

So, in any event, let's let's kind of continue along our path because I think we learn a lot as we successively look at more and more companies.

So, Alibaba is one such company. And Alibaba, um, does not file 10-Qs and 10-Ks. And this is interesting.

The reason they don't do that is because this is a company that is based, as you can see, they're not based in the U.S. They are based somewhere else.

I think they're maybe based in China, for instance. Let's take a look. I don't know. I can't tell by reading this.

Hong Kong. There it is. Hong Kong. I actually like to keep track of headquarters, believe it or not. Headquarters.

Hong Kong. All right. So, Alibaba, I don't know anything about this company. I don't know anything about this company. Let's take a look.

Here it is. December quarter 2015 results. Alibaba today announced results. Alibaba had an outstanding quarter, reaching a milestone of over 400 million annual active buyers and continue our unrivaled leadership in mobile.

Our proven ability to deliver an unparalleled consumer experience help merchants attract buyers will drive future growth in our Core Business.

Sounds like an e-commerce company, doesn't it? Said Daniel Zhang, Chief Executive Officer of Alibaba. We remain focused on our top strategic priorities, including Global Imports, rural expansion, increasing our footprint in first-tier Chinese cities, and building world-class cloud compu- computing business.

Okay, really sounds like Amazon, huh? We had excellent results. We achieved impressive revenue growth and increasing the monetizing the user activity in our marketplaces, particularly mobile devices.

In this quarter, revenue grew 32% year-over-year, and China retail Marketplace revenue grew 35% year-over-year, said the CFO, Maggie Wu.

Meanwhile, we generated strong free cash flow of $4 billion this quarter. Okay, well, if you generate $4 billion a quarter, that means you're going to generate $16 billion a year, right?

And I know this, this is $180 billion market cap.

Martin Shkreli Explains How Wall Street Works (Secrets Revealed)

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Wall Street is segmented into the 'buy side' (investors like mutual funds, hedge funds, pension funds, individuals) and the 'sell side' (investment banks).

Investment banks provide services to investors, including arranging lending through underwriting, offering M&A advice, conducting trades, managing prime brokerage, and issuing securities research.

Stock recommendations, especially from investment banks, are generally biased and often worthless due to conflicts of interest; investors should prioritize self-research and developing 'lateral skills' rather than relying on external opinions.

Wall Street can be conceptually divided into two main components: the **buy side, primarily composed of investors, and the sell side, which consists of investment banks**. Investment banks essentially act as service providers to these investors.

The investor landscape is diverse, encompassing mutual funds (e.g., Fidelity, Wellington), hedge funds (e.g., Renaissance, Citadel), pension funds, insurance companies, corporations, sovereign wealth funds, and, crucially, **individual investors**. Collectively, these entities manage a significant amount of capital, often exceeding that managed by mutual funds and hedge funds.

The Role and Operations of Investment Banks

Investment banks, such as Bank of America, Goldman Sachs, and JP Morgan, are primarily profit centers. **Most of their revenue is generated through investment banking activities**, which include lending to companies, arranging financing through underwriting securities, and providing mergers and acquisitions (M&A) advice.

Additionally, investment banks offer various services to investors. These services involve **conducting trades, prime brokerage, managing deposits, and clearing transactions**. They also publish securities research, providing buy and sell recommendations.

However, sell-side research is generally viewed with skepticism due to inherent **conflicts of interest with investment banking activities**, despite regulations aimed at separation. Most recommendations are not considered reliable, with only a small fraction proving useful.

The Worthlessness of Stock Recommendations

A crucial lesson learned through experience is that **stock recommendations are largely worthless and should be ignored**, regardless of their source, including esteemed investors like Warren Buffett or Carl Icahn. While not entirely without merit, time is better spent on personal research.

It's advised **not to rely on investment bank opinions or the holdings of other investors**. The most valuable approach is to focus on developing personal skills and conducting independent securities analysis. Relying on external opinions detracts from building one's own expertise and conviction.

Success in investing comes from **betting on oneself and cultivating lateral skills**. For example, a pharmaceutical investor should learn pharmacology instead of fixating on what other investors are doing. This personal knowledge base, rather than following others, leads to better decision-making and efficient use of time.

Focusing on Sub-Sectors: The Example of Alibaba

Given the vastness of the technology industry, it's beneficial to **concentrate on a specific sub-sector**. The plan is to select one sub-sector by vote, rather than personal opinion, after reviewing several more tech companies, including telecom.

Alibaba serves as an example of a company to analyze. Notably, Alibaba **does not file 10-Qs and 10-Ks because it is based in Hong Kong, not the U.S.**, which is an important detail for investors to track regarding headquarters.

Alibaba's December 2015 results indicated an **outstanding quarter with over 400 million annual active buyers**, maintaining leadership in mobile. The company, which functions similarly to Amazon, emphasizes global imports, rural expansion, growth in Chinese cities, and building a world-class cloud computing business.

The company reported impressive revenue growth of 32% year-over-year, with China retail Marketplace revenue growing 35%. Significantly, Alibaba **generated strong free cash flow of $4 billion in that quarter**, projecting an annual free cash flow of $16 billion, supporting its $180 billion market cap.

Wall Street is segmented into two parts: the buy side (investors) and the sell side (investment banks).

Investment banks service investors as service providers.

Investors include mutual funds (e.g., Fidelity, Wellington), hedge funds (e.g., Renaissance, Citadel), pension funds, insurance companies, corporations, sovereign wealth, and individuals.

Investment Bank Services and Conflicts of Interest

Investment banks like Bank of America and Goldman Sachs make most of their money through Investment Banking, which involves lending to companies, arranging lending, and underwriting securities.

They also provide services like conducting trades, prime brokerage, and clearing trades for investors.

Investment banks issue securities research with buy and sell recommendations, which are often biased due to conflicts of interest with Investment Banking, despite rules to separate them.

Critique of Stock Recommendations and Importance of Self-Research

Stock recommendations, from any source, are generally not worth listening to and should be ignored, including those from prominent figures like Warren Buffett or Carl Icahn.

It's more efficient to spend time researching yourself rather than relying on investment bank opinions or other investors' holdings.

Success comes from betting on yourself and developing lateral skills, not from listening to others' stock picks.

The speaker personally found success by learning lateral skills like pharmacology and medicinal chemistry instead of focusing on what other investors were doing.

Focusing on a Sub-Sector within the Technology Industry

The plan is to fixate on one sub-sector within the technology industry, which will be chosen by vote, not personal opinion.

The technology sector is too large to cover entirely, so focusing on one sub-sector (e.g., software, semiconductors, hardware, internet, telecom) is necessary.

Analysis of Alibaba's Financials and Business Model

Alibaba, headquartered in Hong Kong, does not file 10-Qs and 10-Ks because it's not based in the U.S.

Alibaba reported outstanding Q4 2015 results, reaching over 400 million annual active buyers and demonstrating leadership in mobile, primarily an e-commerce company.

Strategic priorities include Global Imports, rural expansion, increasing footprint in Chinese cities, and building a cloud computing business, resembling Amazon's model.

Revenue grew 32% year-over-year, with China retail Marketplace revenue up 35%, and generated strong free cash flow of $4 billion in the quarter.

Martin Shkreli Explains How Wall Street Works (Secrets Revealed)

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