Do you really want to invest in the AIM market?

Is the AIM market really the route to a quick buck? Is it the route to heartache? What sort of rollercoaster does it give? The aim of this story is to show what it is like, and so you can follow along – how would you react, and how would you cope? Well…. Join me on the journey and see what you think at these points and what you would do! I should warn you this has turned into quite a long post!

Risk is one of the main factors that people think about when investing – how much risk are you willing to take to grow your future wealth? I have a healthy appetite for it, as you can tell from some of my self-select investments. Whilst I like to adhere to Mr. Buffets golden 2 rules (#1 Never lose money, #2 Never forget #1) – I can’t resist a bit of fun and I guess you would call it gambling in the junior market.

The AIM market is much less strict in terms of reporting standards than the main FTSE, and also has some added benefits for Inheritance Tax. This means you can get some much smaller companies, with much bigger risk profiles. There can be a lot of money to be made in the AIM market (think ASOS), however the most likely outcome is loss – 72% of all companies lost investors money, and even more shockingly in more than 30% of the cases, investors lost 95% of their funds.

So what is it really like to invest in an AIM stock? Firstly – this is not about encouraging you to do this – you really should stick to passive trackers. If you really want to do it, set yourself a budget and use that. When it’s gone, it’s gone- don’t top it up, don’t add in, just accept that it wasn’t for you. I really would not recommend this route for most people….

Now I have been very lucky – I currently hold slightly more than my original “limit” – having already cashed in 1.5 times the original amount, so yes I am biased and I like it. I am also under no illusion, this is not me being an expert stock picker, or having an “edge”, it was luck. 1 stock has gone nowhere in years, one has taken 3 years but has done very well, one did very well in a matter of months, but again, I repeat, it’s luck.

So, join me in the experience, and see, when would you have sold out?

The Highland Gold Mining (HGM) Experience

So I first purchased HGM back in later 2013, and it did indeed look great – see the nice shiny curve going upwards below. Up nearly 10% in a matter of days?  I should sell out and cash in – just think 10% every month, hell I could retire in a few years!

I AM AN INVESTING GOD!

Wait… no I am mortal. Hmmm. It’s starting to slope downwards, not to worry I am ahead of my original purchase.

hgm1

So it’s not too bad, I am still up on my investment, and I will have some dividends coming through, so this investing lark isn’t that hard. This investing lark is easy – take a random stock, buy some and enjoy it…

So this isn’t too hard… it’s making me rich.. but let’s see what happens if we extend a few more days – what happens next type of thing.

hgm2

Hmm, ok this isn’t so good, the price is below what I paid for it… and by about the 10% that made me think I was a legend. Well that’s not a problem – you expect some volatility, I believe in the company and it will get back to where I bought in at in no time. This is just a minor blip right? I can cope with losing 10% – stocks always go up so it will come good.

I know – I will buy some more! I’ll add the equivalent of 50% of my original purchase amount in, and even better, it’s at a lower price so I won’t be sitting on such a big loss – genius! What could possibly go wrong – I can buy even more of this great company at an even lower price (don’t mention Northern Rock….)

hgm3

You can even see the big slump in my average price there, so I have narrowed my loss, and what’s more when it goes back up I will have an even bigger profit! All this within a month, what a rollercoaster! What a positively great idea – by throwing more money at a losing investment I can reduce my total loss…

Ask yourself this – what would you have done? Your gamble is down 10% – would you have sold out, bought more, or sat tight? This is an important question to ask yourself, as part of knowing how you cope with the ups and downs. At least with a tracker you aren’t going to lose all your money (short of a zombie apocalypse).

So how did the rest of 2013 pan out for HGM? As you can see below – I spent most of it at a loss – ending the year down just over 10%. It doesn’t make comfortable viewing.

hgm4

So what would 2014 hold for my holding in HGM? Would I suddenly find myself very wealthy, a significant step towards FIRE, or would I have lost my money?

For most of the year, it was a pretty “nothing”, apart from a spike in April, it was hovering around what I paid – combined with the dividends paid out I wasn’t going to grumble. Looking back at the time I was wishing I had sold at that peak, think of the cash I would have had.

hgm5

Ok, so not the end of the world and up a little bit, along with some good solid dividends this isn’t so bad after all.

And then – slam! Down over 20% on my purchase price again – if I had put a stop loss in at the standard 20%, then I would have sold out and lost a fair chunk of change.

hmg6

So what to do? A major drop of 20+%, a large hit on my portfolio compared to just a tracker fund. Did I sell out? You guessed it – no. I bought more. My first tranche almost doubled my original stake. The price then dropped further. Did I lose my “bottle”? No. I of course bought even more – about 65% of my original purchase. It proceeded to drop further. I bought another 30% of my original purchase value. You can see the constant drop below – chasing the lower price.

hmg7

This was seriously beginning to test even my appetite for risk. It continued to drop even further – down to almost 50% of my original purchase level. So of course, I bought more.

At this stage, I had purchased a huge number of shares (into 5 figures), and spent a fair whack of my investment money on it (many thousands of pounds).

hmg8

Just look at the end of graph – down almost 50% on my original investment. Would you have sold out, cut your losses and run?

I held on – the dividend yield was at this price over 10% so I continued to tell myself to hang on, collect the dividends, and wait.

So for 12 months I sat and tried to ignore what my portfolio showed next to HGM – a thumping great loss. Again, comforting myself with the dividends coming in, and sticking with my belief that they would come back up… eventually.

hmg9

I very nearly bought more when it was at about 25p a share (a huge loss on the total investment), but given how much I had already put into it, I decided not to, after all I had already put in a significant amount of cash. Looking back now, do I wish I had? Of course, with hindsight it would have been great, but not with the amount I had put in already. I was heartened by the fact the price was starting to go back up to what I had bought at.

So for the best part of 2 years I was mainly on a loss – not a comfortable position to be in, but I held firm (or was it that I was just stupid?). Well, the first half of 2016 was suddenly looking absolutely great! See that huge tick up there? Was now the time to sell out and lock in a good profit (more than 50% profit on the original total cost).

Would you have finally taken the money and run, happy to at last make a profit? Would you buy more as it is going in the right direction?

hmg10

I held on for what it’s worth.

So how does the story end?

Well, for me it ended well.

Up until the 20th January, you can see the graph below. Just look at that uptick in 2016. Why did it go up? There was positive news in terms of ongoing mining activity, although there was a fatality at one of their mines.

hmg11

So this month was actually a fairly active one for my portfolio overall. I sold two tranches (totaling just over 60% of my holdings) in January ’17.

I still hold a good slug of HGM shares – the value of which is greater than my entire investment, but the cost of which was a fraction of its value. All told, I have taken more than double my money out, and still have more than my total investment, so all in all more than tripled my money – one of the reasons my portfolio did so well this year.

Did I time the sales perfectly? No.Since the sale, have I looked back and wished I had timed it better? Yes. Since the sales it has still gone shooting up and down, so looking back I am glad I did liquidate a large portion of it. I am sure in the future I will look back and either be glad I did or sorry I did, depending on the share price, I think that’s just my nature.

So, now you have had the chance to see how I experienced some AIM investing – does this put you off? Would you have sold out early on at a 20% loss, given up and gone for a tracker? Run to the safety of cash under the mattress? Let me know!

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Author: fireinlondon

Fighting the high cost of living in London

10 thoughts on “Do you really want to invest in the AIM market?”

  1. Hey FiL
    Thanks for taking the time to document this – thought it was a very enjoyable read and made me think I was watching a high-roller in a casino! I don’t think I would have had the nerve to purchase any more when the price plummeted, but would have hung onto them, hoping for a recovery and then sold in 2016. Well done on keeping your nerve (and being so lucky!) to make the great profits!

    I did a little reading up on investing in AIMs, also as something ‘fun’ to do with spare cash but decided that they exceeded my capacity for risk!

    Liked by 1 person

    1. Hi Weenie,

      Thanks for stopping by again, and glad you enjoyed the ride!
      You hit the point on the head though – it was luck. Did I have any information that no-one else had? Of course not. Would I do it again? You will have to wait and see what else I bought in January 😉

      Yes – AIM is very high risk, and I wouldn’t recommend it to most people, my mentality is once I purchase the stock, the money is lost so any return is a bonus. It can be a route to riches, but more likely a route to povety.

      One thing I find interesting is that I hardly look at my trackers these days – although it’s at a reasonable size there is a mental difference, I simply don’t care – bizarre!
      Cheers,
      FiL

      Like

    1. Hi MSM,
      Thanks for stopping by again and joining in. It really was some highs and lows – the aim was to show what sort of thing could happen in this volatile market. I stuck it out yes, but I was also lucky – I could easily have lost the entire lot.
      I have to say I am very happy with this – it has done me well and given a major boost to the retirement plans…
      Cheers,
      FiL

      Liked by 2 people

  2. Hello from a fellow London FI’er!

    Great Post, you’ve captured the highs and lows of AIM investing really well.

    Reading this post really solidifies why the majority of my investments are in world equity index funds. There’s no doubt your returns were impressive in this scenario, but I highly doubt I would have been so disciplined!

    Like

    1. Hi FIDiary,

      Thanks for stopping by and joining the conversation! Glad you enjoyed it – it really is a rollercoaster ride and very emotional at times!
      You are spot on for the use of world equity index funds – it removes a lot of stress and worries – I really don’t look at my VHYL value at all – it is in and forgotten!
      The question is, was it discipline or stupidity 😉 Yes it gave impressive returns this time, but I have also lost money on this (100% of invested amounts) so I really would not recommend it for all but the most adventurous / insane people 🙂
      Cheers, and I look forward to following your journey – I trust you have joined the FI London Facebook group then?!
      FiL

      Liked by 1 person

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