what lessons can investors learn from the debacles that are HMV, JJB, MCHL, PMK & YELL?

The one and only, Mr Cyril Theret, Ex CEO Plus Markets, presider over pretty much the complete wipe out of his long suffering shareholders

To say that it’s has been a difficult couple of years for investors fishing for the ultimate contrarian plays amongst the small/micro cap sector if the market is probably an understatement.

It is a fact of the markets that low stock prices, particularly in once venerable names, attract speculative players in the hope of bagging a “phoenix” that will rise from the ashes. Illustrating this point, even over 20 years later the company Next still has investors salivating in the hope of picking up a stock for pennies that turns into a £36 stock… 

If this years roll call of dead ducks is anything to go by, the odds of this happening seem to be shorter than ever, probably akin to winning the lotto. What lessons can we learn from this as I also got stung in Plus Markets this year and in investing, it’s all about not repeating your mistakes.

For me, one of the the primary issues with regards to avoiding a banana skin amongst small cap and AIM stocks is one that we have touched upon before in our magazine and that one should pay particular attention to in the current economic environment where credit is not easy. That is to quite simply watch what Directors of these companies are doing with their own money and not what they are saying. Time and again they spin a story of hope to shareholders with a view to keeping the salary gravy train going as long as possible. The roll call of the worst culprits here are the Boards of Yell/Hibu, Plus Markets, JJB, HMV, GMG, MCHL & DES.

The “not so fantastic” Mr Simon Fox, ex HMV CEO & destroyer of approaching £1bn of shareholder value.

What is noticeable about GMG, MCHL, JJB, HIBU & PMK companies above is that there was absolutely zero directors buying in the 6 – 12 months period that preceded the collpase of the companies/decimcation of market cap (with the exception of GMG that had an automatic nominal directors share purchase system in place and so doesn’t count). ALWAYS WATCH what they are doing with their money – if they really believe the turn around plans then they’d put their hands in their pockets and show their faith.

With regards to JJB, I personally had dialogue with Mr Keith Jones and he would always obfuscate around the question as to why he and his fellow Board members would not buy stock when they were in fact actually almost compelled to in order to maximise their returns through a scheme put in place during the recapitalisation process. Now we know the answer why… 

Keith Jones, Ex JJB CEO – sinking ship deserter and responsible for tearing up £20m of Mr Bill Gates money!              

Ditto with Mr Cyril Theret of Plus Markets (an “old friend” of this blog – I wonder where he’ll pitch up after he finally strips Plus dry of almost the last of their cash?) and the “wily” Mr Fox from HMV…

This magazine is a big advocate of making every public company director invest a fixed percentage of their after tax salary into their shares (preferably around 15%) – that way they are truly aligned with their shareholders. Run the company well, the share price goes up and so does your net wealth. Screw it up, company share price goes down and the Galapagos is off the hol menu that year for perhaps a week in Bognor Regis. Similarly, quite how “bonuses” can be paid to Directors in poorly performing companies is beyond us too.

The reason Boards get away with it is because of disorganisation, lack of time and apathy amongst shareholders together with being outgunned by the institutions that seem happy en masse to go with the status quo. Something has to give or faith in the integrity and morality of Public company Directors is likely to fall further through the floor.

Feel free to make your views known below.

Editor