OK, so I am misleading you - in the title of this post, I ask the question "Why do punters love AIM so much?", when I know the answer. It is like lottery gambling, where you are hoping to strike it rich by unearthing a multi-bagger of an investment!

And clearly there have been some notable successes chalked up, like ASOS (LON:ASC) (before its recent travails) which has been a very impressive multi-bagger if you got in early on.

But for a "real" investor who does his or her own spadework and has a well-defined investment process that they use, does it make sense to invest much cash or time on AIM companies? Let's look at some very basic statistics:

Exhibit 1: Price Performance of UK Indices since the AIM 100 index started in late 2005

In this chart, the black line is the benchmark FTSE-100 index, the soaring blue line the FTSE Mid 250 index, the green line the FTSE SmallCap ex investment trust index, and the purple line bringing up the rear is the FTSE AIM 100 index.

Looking at these 4 indices, it is apparent that the FTSE Mid 250 index has more than doubled since late 2005, while in contrast the AIM 100 index has nearly halved, with both large- and small-caps somewhere in the middle, both with relatively modest gains. That means a near four-fold difference in performance between mid-caps and AIM stocks over 9 years!

The basic point is this: the AIM market is NOT the same as the main LSE market - the listing rules are not anything like as stringent, and the failure rate for young companies is, as we all know, high. So the risks inherent in investing not just in stocks, but in AIM-listed stocks in particular, are clearly very high. This means that investors venturing into the murky AIM waters need to do even more due diligence in their research than they would for a larger, more established company which has a longer track record and typically more mature products and services. 

OK, I understand, you don't just want to invest in the largest, boring UK-listed companies like Vodafone (LON:VOD) and GlaxoSmithKline (LON:GSK), which in any case are arguably…

Unlock the rest of this article with a 14 day trial

Already have an account?
Login here