The AIM Index Has Fallen By 60% In The Last Year

‘I wouldn’t have thought it possible,’ said Professor Roundabout with a derisive chuckle, ‘that the two representatives of the London Stock Exchange could get through their presentations on the Alternative Investment Market without mentioning that investors have lost money. Certain things, it seems, are off limits!’

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‘Yes,’ I agreed. ‘I know what you mean. We had ‘a difficult market’. We had ‘a turbulent time.’ We had ‘the market has been volatile.’ But rather than admit that AIM has been a disaster for investors, these guys from the stock exchange just trotted out phrases like ‘AIM’s strengths are built on solid foundations’ and ‘when the upturn comes all the right fundamentals are in place.’ Gordon Brown could not have done any better.’

‘Anyway,’ I continued. ‘What are you doing here?’ (‘Here’ was the conference centre of the London Stock Exchange) ‘I thought that you avoided the City at all costs. You always told me that pure academic economics should not be corrupted by contact with the crazy world of financial markets.’

A date at the LSE

‘Well, perhaps I might have said that. But I was invited. By Sue Swings as a matter of fact. She said that I would have a day to remember.’

‘Oh she did, did she?’ I said.

‘Yes,’ continued the Professor. ‘And she has very kindly offered me dinner in her flat afterwards.’

‘Oh she has, has she?’ All was becoming clear. ‘I hope your girlfriend Soo Ching Lim knows about this. If you ask me Dr Swings is in a state of depression and may be in need of a bit of stimulus. And I don’t mean of the monetary nature, if you get my gist.’

‘Good gracious!’ said Roundabout, looking alarmed.’ You don’t mean to say…’

But he was distracted, by a hand landing upon his shoulder. It was Dr Swings, herself! ‘Roy,’ she purred. ‘So you have come! I do hope you have enjoyed the conference. I am dying to hear what you think…’

‘Hello Sue,’ I interjected.

‘Oh,’ she said turning and noticing me. ‘So you are here as well, are you? I might have guessed.’

‘Well I am a journalist covering small companies. Why wouldn’t I be here? And if you want to know what I think…’

‘Well some other time perhaps,’ said Dr Swings hurriedly, addressing me without ever diverting her gaze from the bearded face of the Professor.

‘We must be off. Come along Roy.’ She gave him a shove towards the exit. ‘There is so much that I want to show you…’

‘I’ll bet,’ I said softly. But the Professor heard and his alarm heightened.

‘Um. Er. Um.’ He mumbled. ‘Look here, it wouldn’t do any harm to stay here for a little longer. And I would like to hear what Tom has to say. Very much.’

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Down 60% in the last year…

‘You have never said that before’, I began, tartly. ‘But OK. The facts are these. The AIM index has fallen by 60% in the last year, and is now less than half the value at which it was launched thirteen years ago. The market has routinely attracted companies that promise much but deliver little. The market has been the victim of whatever investment fad is going. Professional investors have been too ready to believe exciting stories and have dismally failed to make adequate allowance for the risks involved. As one fund manager said at this conference ‘I know nothing about running companies.’ That much is all too obvious.’

‘Yes,’ agreed the Professor. ‘And another fund manager said that the number of slides in a company’s presentation was inversely proportional to its investment attractions. Professional fund managers want business to be simple – but it is not. They should be prepared to make a real effort to understand complex technologies and global industries, but they just don’t do so.’

‘And yet,’ I said, ‘the guys from the stock exchange love to boast that companies from all corners of the world are attracted to AIM by the enormous pool of talent and expertise in the City! It’s a laugh!’

I shot a look at Dr Swings, who reacted predictably to this attack upon her kind.

‘It is not a laugh,’ she retorted angrily. ‘The City is respected the world over. How else do you account for the fact that six hundred of AIM’s sixteen hundred quoted companies are from overseas?’

‘It’s amazing what marketing can do,’ was my answer. ‘And if you think that the City is so marvellous why did one of today’s speakers describe AIM as a ‘dysfunctional market place, which is not providing reliable valuations, trading liquidity or access to capital’.’

‘Well, that is just a consequence of the bear market,’ replied Dr Swings. ‘It will correct itself. You ought to know that.’ She tugged at the Professorial arm. ‘Come on Roy. I am tired of his cynicism. You and I have far more important things to talk about. Let’s go.’

Flattering to deceive

‘Yes, Yes. In just a minute,’ said Roundabout, desperately. ‘There’s no hurry, is there?’

Dr Swings rolled her eyes in frustration.

‘After all,’ continued the Professor. ‘There was one very interesting talk this morning. By an old colleague of mine, actually. Professor Mario Levis of the Cass Business School. He demonstrated how AIM companies routinely disappoint in their first three years on the market. He made it clear that they struggle to make the transition from the private sector to life as a public company. They do not effectively use the cash they raise when floating on AIM and they do not execute their strategy. In short they flatter to deceive.’

‘Oh you are so right,’ said Dr Swings, with a swoon. ‘You are so very perceptive. Intellectually brilliant and so very shrewd! Now do come along. It is really high time that we left.’

‘Very well,’ said the Professor with a look of resignation. ‘I think it is time for that dinner you promised.’

‘Dinner?’ said Dr Swings. ‘Who said anything about…Oh yes, of course.’

As he was led away the Professor looked over his shoulder. His expression was one that, try as I might, I cannot forget. It was, I think, a cry for help…

That’s all today. But keep an eye out for my new report. There’s a great investment opportunity coming your way. You see, thanks to all this panic-selling we’ve been seeing, some of the UK’s most exciting small companies are now selling at prices we haven’t seen for nearly five years.

I’m convinced that many of them are due a huge “bounceback”. There are lots that I like the look of. But what I think would be more useful to you is if I whittle this list down to my “top three” picks – small cap shares that stand the best chance of delivering great gains… even as we stand on the brink of a recession.

Like the sound of that? It’s going to take a little while before my research is ready. But I’ll let you know more when the time is right. It should be within the next two weeks. Stay tuned…

Regards,

Tom Bulford
for The Penny Sleuth

P.S. The Bank of England last week slashed interest rates by a whopping 150 basis points. That’s bad news for sterling. Playing currency markets is not my thing – I’m a shares man. But my colleagues over at The Fleet Street Letter have a way to play it. I’m not talking about leveraged Forex trading either. In fact, their recommendation is to use one “staid” investment to protect your wealth – but also as a way to make money as the pound falls. If you’re looking for a way to hedge your share portfolio, this could be it.

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P.P.S. If you want to follow the insights of a small company investor, and uncover the hidden gems of the stock market, find out more about The Penny Sleuth by clicking here.

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