A throwaway comment at the end of my last piece on this blog last week drew a surprising response over the weekend. Writing about the AIM resource sector, I said “buying and holding these stocks is, after all, investment suicide.” Let’s just say, this view has not proven to be universally popular..!
I can accept I am a little jaded towards the small-caps, after a rotten 18 months, but the more I look at AIM the more broken I feel the model is. This might sound a little contradictory, after I was celebrating the purple patch resource stocks have just hit, but just because I plan to make good money in the coming months, doesn’t mean I have to like how I do it.
Here’s why…
Of the many criticisms I have of London’s Alternative Investment Market, perhaps the biggest is that I believe it is a destroyer of wealth. Sure, there are some who are blessed with certain insights (or, more likely, strong broker contacts), who consistently make money out of these stocks but, for the majority of punters, AIM is a death trap, pure and simple. Just look at the chart below;
In investment terms this makes pretty horrific viewing. Were this chart the life signs of a beloved family pet you would probably be doing the right thing in taking it to your local friendly vet and having it put down!
Yet somehow this market trudges on, in the face of persistent failure.
In many ways the ability of AIM to keep attracting the money of retail investors is quite impressive. It was launched on 19th June 1995 – the successor to what was known as USM (the Unlisted Securities Market) and although the FTSE AIM All-Share Index consitutent make up was revised in May 2005, to all intents and purposes the base price of this market was 1,000. Today AIM closed at 760.59. So, after nearly 18 years, the “most successful growth market in the world” (ahem… at least according to the London Stock Exchange’s website) has managed to fall 24%. That really is quite the investment riddle is it not? — “What is high growth, but falls in value?”
Of course, the answer to this is much less amusing and I would suggest has cost British investors hundreds of millions of pounds over the years. Today there are over 3,000 companies listed on AIM, but how many of these stand a cat in hell’s chance of delivering true shareholder value and, heaven forbid, ever paying a dividend?
Based on the chart above, the number has to be pitifully small.
What troubles me about this is how few people seem to have grasped the reality of putting their money into AIM. Casually stroll through any bulletin board and you will see post after post extolling the virtues of company X and why this makes such an attractive investment proposition. And, for the most part, it’s all nonsense.
On AIM there is no such thing as an “investment proposition”. All that really matters is “share price appreciation”. In other words you buy otherwise worthless stock at a price you hope is cheaper than the next sucker will be prepared to pay for it. The trick is not to be the last person left holding the rubbish.
But whatever you do don’t try and raise this concept with reference to any specific stock on an Internet forum. The response is usually apoplectic and I imagine people have been burned at the stake for less!
However ignore the ravings of fanatical “investors”. They’ve simply lost site of the truth.
Like it or not, we’re all traders on AIM.