Back in the mid-to-late 1990’s, my daily commute would take me along the Metropolitan line from Wembley Park to Moorgate, where I worked as financial controller for a Japanese asset management company.
The journey would take about forty minutes on a good day and there was no free copy of Metro back then to pass away the time; I actually had to buy an actual newspaper.
Given my job, I thought I should at least have some passing knowledge of what was going on in the financial world; so, once I had ploughed through the back pages and caught up on Bridget Jones’s diary, I would finally turn to the business section as I approached Euston Square.
In the ten minutes I had left, one feature always seemed to catch my eye. It was a company news round-up column, which summarised some of the previous day’s share price movements.
Some days, I would see a company’s share price rising by 30 to 40% or more and I would think of my savings account at the bank, earning 3% and wished I had invested in one of those companies.
Instead, I carried on slowly saving for a deposit on my first flat and forgot all about the wonderful investment opportunities that could be had on the London Stock Exchange.
Looking back, what I now believe, is that those fantastic share price rises were probably from companies that had been listed on the then recently launched Alternative Investment Market (AIM).
What I also didn’t know then, but would hazard a guess now, is that those share price increases possibly followed precipitous share price falls in the preceding six or nine months.
To demonstrate the point using a more up-to-date case, take Immupharma (LON: IMM) as an example. On 22nd February 2019, its share price reached a 52-week high of 18.5 pence. On 27th November 2019, its share price hit a 52-week low of 6.91 pence.
On 28th November 2019, Immupharma released news stating that it had signed an exclusive licence, development and trademark agreement. At the end of that day, Immupharma’s share price closed at 28 pence (a remarkable one-day gain of 297%), a new 52-week, closing high.
As at 31st July 2023, IMM trades at 2.28p a long way down from its 2019 peak and a perfect illustration of the risks of investing in AIM listed shares.
Investing in AIM shares
However irrational AIM might be, it won’t stop retail investors from having a flutter. If you are a first-time investor, thinking of investing in AIM listed companies, there are many questions you should ask and research you should undertake before hitting the buy button.
The reality is that many of us read a magazine or newspaper article about some exciting news released by an AIM listed company or get carried away by the bullish chatter on investor forums and jump in without properly analysing all the risks.
Sometimes, that approach can work out and if it does, I would argue the outcome was down to timing or good luck rather than good judgement. If it doesn’t then you will either spend a lot of money averaging down or spend a long time living in hope that you will get your money back; unless of course, you bite the bullet, sell up and take your losses.
Can you make money on AIM?
To roll out an often-used cliché, investing in AIM shares is not for widows and orphans or inexperienced first-time investors for that matter.
AIM listed companies are high risk, high return and while the rewards might occasionally follow, the hard evidence over the long term suggests you are more likely to lose money than make money on AIM shares.
The evidence on returns from investing in AIM shares comes from a study conducted by two professors at the London Business School – Elroy Dimson and Paul Marsh. They examined the performance of 2,877 AIM listed companies since its formation in 1995 and its twenty-year anniversary in 2015 and their main findings were as follows:
- AIM’s annualised total return was minus 1.6% per annum when measured over the twenty-year period
- Between 1995 and 2015, investors would have lost money in 72% of all the companies to have listed on AIM
- They calculated that in more than 30% of the sample size, shareholders lost at least 95% of their investment
- 39 companies (or 1.4% of the sample size) have achieved multi-year returns in excess of 1,000%.
Investing in AIM listed companies
If you are thinking of investing in AIM, please refer to the AIM listed companies category for share price news, investor updates and investment reviews of individual companies.
