Eye on AIM

By Ben Turney.

I am increasingly exasperated with London’s Alternative Investment Market. It’s broken. There are no two ways about it. AIM’s structural faults are so obvious that I cannot see how it will possibly last in the long run. I, for one, will perform a delighted little jig on its grave, when it eventually goes the way of the Dodo.

As a private speculator (there are no investors at this end of the market), day in day out, I see the same shoddy practices repeated over and over on AIM. Excessive compensation, terrible operational performance, obfuscating RNS announcements (even if “Nomad approved”, ha ha!) and absurd broker valuations are just some of the ills, which afflict this market.

Yet nothing is being done to curb these obvious and damaging behaviours. At best, the regulatory oversight is impotent and at worst it is non-existent. It really is the Wild West out there, so why are there no attempts to reform this morass?

Perhaps I am being too cynical. After all, according to the London Stock Exchange website “AIM is the most successful growth market in the world”. In other words, all is fine and we should shut up and buy up.

However, as I pointed out a month ago, for such a supposed “successful growth market” there’s been remarkably little growing going on. In fact, there’s been none on aggregate, since AIM first formed. The AIM All-Share Index has been mired in a range at or below the base value of 1,000 set in 1995.  After 18 years, this market is down 20%. It sort of makes you wonder how much of a disaster an “unsuccessful” high growth market could be!

So no, I don’t believe I am being cynical at all.

AIM is set up to lose you money.

The only real winners in this game are the insiders. Boards of directors will always earn their salaries, irrespective of how their stock prices tank. If prices do go up, then out come the generous options’ packages for “excellent performance”. It really is a win-win if you are ever lucky enough to join an AIM-listed board.

Then there are the hordes of brokers, Nomads, legal advisors, auditors and all the other fee hungry “experts”, gravitating around this market. Their slick professionalism is quite the conjurors’ trick. It provides AIM with enough of a veneer of respectability, to convince the outside world of the legitimacy of many of the companies as investments (in the true sense of the world) and enough of a shine to keep those all important fees nice and high.

The reality is that if you buy into an AIM stock, using a buy and hold strategy expecting to benefit from the fantastical hopes and dreams of most of the promotional literature produced, then you are going to lose money.

So what can be done about this?

Sadly, the answer is probably not a lot, but this isn’t to say we shouldn’t try.

With the recent changes to the ISA rules, the risk is that flocks of inexperienced investors will be tempted to come and graze on these rotten pastures. And just like the flocks of inexperienced investors, who have been here before them, it won’t be long before they too are devoured by this ravenous beast, ever hungry for the savings of Joe Public.

Isn’t it high time someone kept an Eye on AIM?