 Good day, fellow investors. Welcome to the Value Investing School, Episode 1. How to quickly say no to stocks? How to quickly assess whether you should look deeper into a stock or not? In this video, we're going to learn how investing is a game of mostly exclusion. We're going to focus on the business yield, current or future, and that is what makes things easy. And then we're going to discuss how you shouldn't be a relative investor but an absolute investor. This is what makes the difference and this is what makes things easy. And I'll discuss all of these topics by analyzing a stock market example, Lossitan and Provence as a company. It's a company that has beauty skin related brands all around the world in 90 countries with more than 3,000 retail stores. You probably see that brand when you travel around the world. So during a week, I usually look at a dozen, more than a dozen of stocks and how do I know whether I should put more time into one or another? Well, the easiest separator is and Warren Buffett usually says that he can see a good stock from a bad one or a potential one from a not interesting one in just 5 minutes. And I'm going to give you the three key things you have to look at when looking at stocks and then simply say no, no, no, no to all those that don't pass the initial criteria when it comes to stock market research. I'm currently researching a stock list from an Asian Value Investment Fund and one of the stocks on that list is Lossitan and Provence. And the things I want to explain by looking at Lossitan and Provence are the risks of not focusing on the business yield, the risks of being a relative versus an absolute investor and then how easy it is to say no to an investment. So let's start with the first thing and that is the business yield. What is the business yield? You're an investor. You invest in businesses, not stocks that go up and down on a daily basis on an hourly basis. You invest in businesses. So when you invest in businesses, the key components are the price you're paying versus the yield of that business. What is the business delivering in earnings, cash flows, whatever you are measuring for a specific business? So when you find those two components, everything else becomes less important. You have to see what is the price you're paying for current or even better perhaps future potential earnings of such a business. Warren Buffett always likes to focus on businesses that will be here 10, 20, 30 years from now and that he knows will be better businesses in the future. For example, Lossitan is a growing company which revenues line one that have been growing since ever practically. So practically tripling over the last 10 years earnings have done well two over the last 10 years doubling a little bit less than double. But they had some peaks a few years ago. Now it has been slowing down. So what would be a price that you would pay for these kind of earnings? We see an average earnings of about 100 million euros. So if you want a yield, a business yield of 10%, you have to pay 1 billion euros and then you get 100 billion in earnings. If you want 5%, then 2 billion is great. If you want 4%, then 2 billion 5 is okay. If you want 20%, then 500 million is okay for this company. If we look at the market cap of Lossitan, it's 20.6 billion Hong Kong dollars or 2.6 billion euros. That means that the business yield the company currently provides is 3.84% given the price earnings ratio of 26. You say, okay, price earnings ratio of 26 earnings yield just below 4%, that's not a great investment. But then you have to always look, okay, is there the future? What is the company promising? We have seen a really good growth line, growth company tripling revenues over the past 10 years. If they do that again over the next 10 years and they even triple or quadruple earnings, then it's a completely different story. So let's see at the growth potential. You can see here that same-store sales growth are 1.8% in 2019, 1.7%. That's okay, but they're really growing by enhancing the number of stores. They made some acquisitions. But then when you read the company's transcript, you always look for those things and then you see that they are in the midst of a strategic review. The group has new management because we have seen, let's say, the declining earnings over the past few years. So adopting omnichannel, mobile, digital approach. So the environment where they operate has really changed. Just to note on this, Lossitan and Provence is a product that my mother-in-law gets excited about. So not really targeted to the millennials, Instagram buyers out there. So they are changing, they're trying to change, plus on top of changing, they just did a $900 million acquisition buying a company that has $40 million in EBITDA earnings before interest, taxes, depreciation and amortization. So they paid 22.6 times EBITDA for skin care, whatever brand, hoping that the brand will grow 30% per year in the future and that they can scale this business in China where the brand enemies is completely unknown. So they have here some new products, mostly targeted for, of course, millennials that I think Lossitan might be losing the game there. But when it comes to investing, what this tells us? For a value investor, you want certainty, you want unlocking of value that's hidden. Not that it's potential and maybe. I don't know whether the management will turn around the company. The management doesn't know it. They don't know what will be the result of this acquisition. What will be the Chinese market reflection on the new brand that they have acquired? Who knows, especially with tariffs, trades and anti-US politics there. So it's very risky. You don't know what will happen and that's something not that a value investor does not do. So we have an earnings yield of 4%, less than 4%. Slow growth, if we exclude acquisitions and higher new investments, earnings haven't gone anywhere over the last 10 years. And the risk, everything, the concept of the company is based on future potential growth based on a turnaround. All red flags for value investors. So it's not something I would invest in. Perhaps the brand Lossitan is valuable, someone might acquire it. But that's a risk I'm not going to run. So this makes things easy. We looked at the business yield potential or current. We've seen that the current is too low, the future is too risky and we simply say no. And now comes the second question. The stock market is buying this stock. The stock market is giving it a 26 valuation for an earnings yield of 4%. Why are they doing that? And here comes the notion of being a relative versus an absolute investor. If you're an absolute investor like Warren Buffett is, you focus on the business yield you want to buy. 99% of the market are relative investors because they care about how their performance will be in this quarter, in the next two quarters over the year and they just want to beat anybody else so to get more money to manage more fees, etc. So you have to separate that and being an absolute investor makes things really, really easy. So relative investors simply think that Lossitan is a good brand, it's growing fast, it just made a transformational acquisition and if it continues to grow at 10%, 15%, perhaps even faster thanks to the acquisition in the future, it deserves a multiple not a 26 but of 40. And then you see that this stock would be 30% undervalued. And this is the problem with relative investing, comparing to something else, comparing to Amazon, comparing to other brands, who cares what the others are doing. You have to care what's the business yield because that is what delivers long-term investing, investing not speculative returns. If we look at the market we see that the stock didn't perform well since the earnings declined but also we have these peaks, it never really took off. The stock is where it was since it was public, so even lower probably. So nothing special there, the company didn't manage to leverage the brand, do really, really good, except for the good earnings. So how to say no to a stock? Look at the business yield, look at the promises. Simply say no, no because there are what 70,000 traded names around the world. You just need a few for your portfolio for a great investment life. You don't need more than that. And that's why we just eliminate, we look bottom up at as many companies as possible but it usually takes three to five minutes to say no to something somewhere 10%, 15%, if you really dig deeper into a sector or something. And then that's it. If you find one of 50 is interesting then you start looking at it, look at the history, okay, what are the completely other components when it comes to really making a decision which we will discuss in other episodes. So please subscribe to the channel. So conclusion, look at the business yield, be an absolute investor because absolute returns are what determine your long-term investment returns. Don't look what others are doing and simply say no until it really hits all your investment criteria. And number five, subscribe as I said. Looking forward to your comments, any questions please share them in the comment section below so that I can structure this value investing school so that it better fits your investment environment. Thank you for watching, looking forward to your comments as I said and I'll see you in the next video.