Bulletin board morons, Zombie markets & rose tinted glasses!

Speculating on AIM can be one hell of an emotional experience and, more often than not, leads to a great deal of wailing and gnashing of teeth. Try and enter into a reasoned debate on a bulletin board about anything to do with corporate risks of a particular company and, almost invariably, you get rounded on as being a basher, having an agenda or being part of a shorting conspiracy.

It’s too absurd for words.

When you consider how atrocious corporate performance is across the board on AIM it really is amazing how these stocks can attract such diehard fans. I suppose, where money is involved people can become agitated, especially if they have staked too much in a high risk venture and have witnessed the value of their holdings grind ever lower. The last few years have been a pretty harrowing experience for anyone invested in the resource sector on AIM, so it is understandable how sensitive some can be.

However, this is no excuse to avoid serious discussion about how companies genuinely perform.

Strong corporate performance should be at the heart of any successful stock exchange. Capital should be allocated to the strong and the weak should be weeded out. Profits should be made and dividends or other rewards paid. Failure is an important aspect of a healthy market, as the old makes way for the new.

Quite why AIM should be exempt from these basic principles of capitalism is beyond me.

One of the biggest problems with AIM is the number of zombie companies haunting it. Thanks to the incredible efficiency of this market at fundraising (and it really is extremely impressive), hundreds of companies survive through the never ending stream of discounted placement after discounted placement. When you think about what a wonderful resource AIM should be for Britain it is all the more disheartening to see it wasted so.

So why isn’t something being done about this?

One of the blockages to reform has to be certain bulletin board behaviour.

The bulletin boards should provide forums for private investors (speculators) to discuss the pros and cons of investing in a company. Sadly though, they rarely fulfil this function. Instead, it is all too common for each company message board to have a resident “expert” or three, who have taken it upon themselves to promote whatever propaganda boards of directors wish to foist onto the market.  The boundless and obsessive optimism of these self-style “post police” is irrepressible. They shout down any dissenting voices and ruin any debate about how a company is genuinely performing.

What is very sad about these people is that I believe, for the most part, they actually believe they are protecting their investments. Their polished rose tinted glasses help them convince themselves that their stock market darling is much prettier than all the other stock market darlings, so it is only natural that everyone else should flock to buy into this “massively undervalued” opportunity.

It doesn’t matter that the company in question has missed all deadlines, is running out of money and is paying a useless CEO hundreds of thousands of pounds each year for doing next to nothing. Oh no, this doesn’t matter in the slightest. After all, why let the facts get in the way of a good story?

To survive and flourish in the long run, AIM needs more companies to fail, but while the legion of obsessive cheerleaders keeps singing the praises of terrible investment propositions there will be little impetus for change.  

We cover more about the performance of AIM in December’s issue of Spreadbet Magazine. The numbers are truly appalling.