2014 Review and New Year Resolutions

Now’s the time of year to look back on the performance of the stock market in 2014, and look at plans for the future. Last year was undoubtedly a disappointing year for the UK stock market. The FTSE All-Share index was down 2.45%, worse than many other major markets. The cause was undoubtedly that the All-Share index is dominated by large mega-cap FTSE-100 companies such as BP, Shell, Glaxo and Tesco. The first two have been badly hit by the decline in the oil price, Glaxo alone fell 14% and you don’t need to be told the travails of Tesco.

Smaller cap stocks had a particularly disappointing year after a barnstorming 2013. The FTSE Small Cap Index was down and the FTSE AIM index fell by 16.5% on a Total Return basis. Small cap stocks were generally out of favour as investors moved into more defensive holdings or piled into the US market. Stocks such as ASOS and Monitise fell as the froth disappeared. Quindell, Blinkx and Globo suffered from disparaging blogs linked to shorting attacks and the small cap resources companies which were often kept afloat purely on hope, fell into a black hole. There were few major gains in AIM stocks and new listings such as MoPowered and Outsourcery fell very substantially. Avoiding all these disasters was not easy for investors in smaller companies.

New Year Resolutions

Before the end of the year ShareSoc sent out a Tweet asking what ShareSoc should do for investors in the New Year. We got a number of responses, which included:

– Sort out AIM including press hard for reform of AIM, and making Nomads and the boards of AIM companies more accountable.

– There was a also a call to regulate bulletin boards and force people to use real names not pseudonyms (if Facebook can do it why not in the financial sector where it is even more important?). It is clear that on the internet there is rampant distortion of the facts by some commentators, much of which is libellous but where there are no adequate legal remedies for those attacked. Sometimes these commentators are defended on the theory that there is “no smoke without fire”, i.e. there may be some underlying truth in the allegations  – sometimes there is but often there is not. It is impossible to separate truth from fiction in many of these cases, which can be exploited by those who take a financial stake in the companies.

– Push for disclosure of who participates in placings (private shareholders generally don’t like placings in which they cannot participate and there is a feeling that shares are often put into the hands of friends of the board or existing investors).

Comment: Note that ShareSoc has been aware of the deficiencies of AIM for a long time and we have previously expressed our concerns to the London Stock Exchange (LSE) who run this market, and to the Government. The lack of independent regulation and other deficiencies in the regulatory regime, and in Company Law in general, mean that directors and their advisors are rarely penalised for misleading statements and general duplicity.  If anyone is penalised, it tends to be the companies and hence shareholders. Unfortunately there seems to be no great desire in other stakeholders for change. Companies and their directors like the existing “anything goes” playing field. Advisors, corporate brokers and Nomads think it’s just fine. The LSE like it because it minimises regulatory costs and enables them to collect fees from listing new companies, many of which are early stage and immature – many such companies are also based overseas. For example, the problems of corporate governance and regulation in Chinese companies listed on AIM have become very apparent so they are now valued very lowly by the market.

Only the Government could really step in to change AIM, but being an “unregulated” market gives tax advantages and it is unlikely any wholesale change is possible in the short term. So in the meantime, investors need to look very carefully at AIM companies and who is running them. As this writer has said before, you can make a lot of money investing in AIM stocks, but selectivity is the key. ShareSoc will continue to push for improved regulation by the LSE.

As regards the problems of aggressive shorting campaigns and general misinformation being posted on bulletin boards, yes there is surely a need for some regulation of them. How to do this without introducing needless and expensive bureaucracy which might inhibit free speech is the problem. Suggestions would be welcomed on this.

But in the meantime, one New Year resolution that all readers might like to take up is this: “I will only ever post on any bulletin board or social media channel using my own real name“. That way everyone will know who I am and be able to evaluate my credibility. Anyone who is not willing to do so will immediately be suspected of wishing to conceal their motives or interest in the matter under discussion.

This writer will certainly be taking up that resolution.

Roger Lawson

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