Nufarm is one we can just never quite get over the line with. Every stock has its price, and normally, you never quite know for sure what that price is. You are ballpark at best.

Side note: if you read that sentence, and think “surely not”, and feel that the best fund managers and stock pickers are more precise than that, more calibrated than that, let me gently suggest that the finest of fund managers at AMP, Magellan, Platinum, CFS and many others have had funds that have been deeply underwater relative to benchmark over time frames such as the 1, 3, 5, 10yr and in some instances since inception.

The only way to underperform is because either the true earnings trajectory turned out to be lower than you expected, or because the true earnings multiple turned out to be lower than you expected. The key part is that it was different to what you thought, and that “ballpark” turned out to be the wrong stadium.

Huge teams, vast brainpower, systems, processes and market power, and yet in many instances the results are still very ordinary, over periods of time that matter for a species that lives only 80 years or so.

Investing is hard.

Story resumes: with that in mind, that’s why we prefer to bank upon the fundamentals, to give you a margin of safety from an operational perspective, in addition to the standard concept of “margin of safety” from a valuation perspective.

If a stock has good enough cashflows such that even if you got your valuation wrong, the downside is limited (at the margin) by the fact that the negative feedback loop into the balance sheet, and therefore financial distress is contained, or at least is more likely to be contained.

Nufarm has been very cheap. But the cashflows (below, shown annually, to account for the material half on half seasonality that is common to agribusinesses) just aren’t there.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

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