Here respected investor Gervais Williams explains how he hunts for bargains in the Aim junior market - and his picks for 2015
1:28PM GMT 15 Dec 2014
Shares in many of Britain’s smallest firms are now entering a “super‑cycle” of returns. These “micro-cap” companies are, as I explain in my new book, The Future Is Small, to be found in large numbers on London’s junior stock exchange, the Alternative Investment Market (Aim).
But, as on any market, there will be some stocks that do well and others that don’t. So what are the key characteristics to look for?
Many investors believe that outperformance is all about participating in above-average growth.
It’s logical, they say, to expect those firms with the greatest growth prospects to offer the prospect of the best returns.
But there’s a flaw in this thinking. Human emotion is often in the driving seat when buyers cluster around an exciting story, and that drives up valuations beyond those justified on rational grounds. The momentum of the crowd often pushes share prices higher than their ability to deliver.
A better starting point is to research stocks that have disappointed investors, because at least their share prices often start near new lows. Emotional investors don’t tend to hang around when they fear the share price might fall even lower in the short term.