There are many reasons why AIM listed stocks are risky which is part of the allure for the uninitiated.
AIM, that part of the market that has the appearance of excitement and fast profits but is in reality nothing more than a licence to print money at shareholders’ expense.
Take this post entitled Ortac’s Placing Shows Why AIM Needs Reform – This Monstrous Buggery Of Private Investors Must STOP written by the Tom Winnifrith over at Shareprophets.
Ortac (OTC.L) Share Price
Chart courtesy of Yahoo! Finance
This is not the first and dare I say last time that ‘big share moves ahead of a placing’ will happen with AIM stocks.
The way this screws shareholders is that if a management issues new shares in a placing, it means that the value of shares held before the placing will be worth less after the placing.
Because the value of the company will be split among more shareholders – the more people (shareholders) who are entitled to the value of the company, the less value per share there will be.
It gets worse with ‘serial placers’, those AIM companies that like nothing more than to raise cash by issuing shares.
Or what about Silverdell – A Whistleblower Emerges: This Looks Dreadful For Disgraced CEO Sean Nutley.
Issuing a rosy statement when one of your subsidiaries is being wound up is unacceptable.
Are All AIM Stocks Risky?
No not all, but a significant amount are and due to the ups and downs of stock market prices more generally the riskiness of AIM stocks changes all of the time.
That being said there is a lot of shenanigans on AIM that new investors should simply avoid by not investing in AIM stocks in the first place. Your individual level of expertise and your appetite for risk will determine whether or not you should invest on AIM.
If you are determined to make your fortune from AIM then getting to know the worst cases of shareholder value destruction is where you ought to start.
This way you get know very quickly what you will be dealing with and how as an investor you can quickly discard companies that are clearly mismanaged.
Here are three ways which will help you avoid the pitfalls of investing in AIM stocks:
- How To Find Undervalued Stocks
- Is Management Creating Value For Shareholders?
- Stock Market Prices And How To Profit From Them
I’m always surprised at how some investors do not take investing seriously enough. Surely we all owe it to our after tax cash to conduct thorough due diligence and only invest when the right kind of opportunity presents itself?
Let me know what you think.
Are you an AIM investor? How Do You Avoid The Pitfalls of ‘Loose’ Regulation?