The Alternative Investment Market is a part of the London Stock Exchange that is aimed at new public companies that want to operate with regulatory flexibility.
Given the situation at companies like NMC listed on the main exchange I am no longer sure what this means in practice, but in theory it generally meant smaller companies new to public listing and much more buyer beware.
Most share dealing platforms offer shares in the London Stock Exchange's Main Market and The Alternative Investment Market (AIM) and quite possibly you will not realise in which market a company is traded.
This matters as the profile of the companies in the AIM and the Main Market are usually very different, so the questions that you need to ask are also very different.
The AIM was created in 1995 with the intention of attracting the
International market for smaller growing companies. A wide range of businesses including early stage, venture capital backed as well as more established companies join AIM seeking access to growth capital
If you are new to share trading you may wish to exercise a great deal of caution when dealing in AIM listed companies. Many of the assumptions that you may make if you think that you are buying a Main Market company are implicitly invalid for an AIM company because the AIM is meant for sophisticated investors.
Although something of a simplification I tend to group AIM companies into one of the following group.
- Potential Main Market - The company is ready for a main market listing and is either close to moving or is quite happy where it is as the management are too busy running the business.
- Intends To Be Main Market - The board will consist of people experienced in the industry, probably paying small dividends already, the business is growing but is still "too small this year".
- Almost Accidental Floats - There are some companies that seem to be plcs because there was some need for funds and selling shares was seen as the only way to go. For example this may be the only way for a company founder to be able to exit a company.
This type of business may not really want to be a listed company, so dividends may not be paid and the original owners may still regard the business as theirs.
- Highly Speculative But Self Deluded - The company genuinely believes that it is on to something, all it needs is £10 million to get it to market. Think university lecturers with a pharmaceuticals start-up.
Look carefully at the grants this type of business is receiving and the partnerships that is forming. Have they partnered with a non commercial entity such as a university and are the transactions between the parties reported with real commercial world accuracy.
- High Speculative And Cynical - The company is taking a big risk with shareholders money, knows this and doesn't really care about the investors. Think uranium mining in the back of beyond.
Type 4 or 5 companies clearly represent a very high risk.
You'll notice that there is not a category for well run businesses that want to stay on the AIM.
This is because in practice such companies rarely exist, going public means that the business is no longer yours, why would you want to do this unless you are going for growth?
Despite the generally cautious attitude there are some well established businesses on the AIM that have not moved to the main market, such as ASOS (fashion retailer) and Laura Ashley (retailer).
The general approach to deciding whether or not to buy AIM shares is the same as for the Main Market, but extra care is possibly needed in respect of
- Large Spreads - Buy/Sell spreads are often very high, for example I was looking at Laura Ashley in Jun 2017 and the spread was varying between 5% and 10%!
- Low Volumes - You may find that the company that interests you has on average 1 or fewer trades per day. This has a big impact on how much the share price is likely to move and how easy it is to buy and sell in decent volumes.