Tuesday, 6th March 2018 10:01 - by Ranjeet Singh
It’s not always easy to make money when volatility spooks the hell out of people and nowhere is that more common place than in the AIM market.
However, lest we forget that the AIM market also has some massive advantages. I have been trading for 25 years and as a professional for at least 15 of those years, and during that time the vast majority of my success has come from the AIM market. My single biggest trade was ASOS (As Seen On Screen) which I recommended to my clients at 3p and several years later it was up to £70 a share!
Penny shares are definitely more risky and so the risk disclaimer should be that it’s not for everybody. I will of course toe that line because I am FCA regulated, however I don’t really think it’s as simple as that.
For example, the risks would suggest that the AIM market is all high risk which isn’t true. I can name plenty of companies in the AIM market which have stronger balance sheets than FTSE250 companies and even some FTSE100 companies. Remember the FTSE250/100 classification is only about size, not about profitability, revenue, cash balance, debt or any of the other important factors that you can think of. In fact, one could argue size is less important than many of these other factors. Certainly size didn’t matter when it came to Carillion which was the UK’s 2nd largest construction company before it became the UK’s the smallest by going into administration!
The truth is that money is made on pricing and knowledge and as long as you understand how these work in unison you can mitigate the risks. For example an AIM company will tend to be far less liquid with a wide spread and that for an unassuming investor is a huge problem. However for an experienced investor, they can turn this to their advantage by buying within the spread through the use of limit orders. The same goes for lack of information, volatility, poor new flow and so on. Each of these can be used to your advantage if you know how.
Ironically I have many clients who are interested in mitigating their future potential Inheritance Tax liability and there are a number of AIM IHT exempt shares and funds which would be perfect for them. However unfortunately they rarely find out about them because firms are wary of marketing ‘high risk’ shares to retired investors in fear of falling foul of regulation. Instead those same investors will end up buying something from a boiler room selling cemetery spaces at Mayfair prices, car parks that don’t exist or Brazilian Christmas trees (if it wasn’t true it would be funny!)
Investment is about risk and return and adopting a sensible approach to your overall circumstances so you should consider the whole market and then make an informed decision. Investing 10% in the AIM market for example may not be unreasonable even for a low risk investor.
I promised myself to keep these blogs short and sweet. I’m confident on the first part but I’m not sure how sweet it is, so perhaps you would be kind enough to email me at firstname.lastname@example.org and let me know. Also if there is anything that you would like me to cover in terms of investments or finance in my future blogs I’d be happy to help.
In the meantime I recorded a short video on the AIM market and why it’s not perhaps the animal that you were led to believe. Just copy and paste the URL and be sure to subscribe to the channel to get the latest videos.
The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.