“Sell in May and go away, don’t come back until St Leger’s day” could be words worth heeding for nervous investors, concerned about the numerous headwinds facing global stock markets.
The old saying encourages investors to sell their shares at the beginning of May, when markets are quieter because the big players are on holidays, to then re-buy them on St Leger’s day (a racing meet which usually takes place on the middle Saturday of September).
This year, investors who listened to the adage would indeed have avoided a market drop, as the FTSE All Share dropped by 1.09% between May 1 and September 1, according to analysis by Fidelity International.
However, Tom Stevenson, investment director for personal investing at Fidelity International thinks that, while selling up may have proven beneficial on this occasion “these figures highlight the importance of a long-term view, rather than being drawn into seasonal behaviour”.
Indeed, while selling up might have worked this time round, data shows that the adage has not worked more than half of the time over the past 30 years. Specifically, investors who have stuck with the mantra since 1990 would have missed 18 opportunities for positive returns, such as a hefty 17.8% return in the summer of 2009 and 12.4% in 2005.
“You’d be surprised at how superstitious investors are - many still abide by rules like ‘Sell in May’, despite research demonstrating otherwise,” says Richard Pearson, director at Selftrade. “In the decade since the financial crisis we’ve witnessed a record-breaking Bull Run, which has proven that ‘Sell in May’ is less strategy and more an Old Wives’ Tale.”
Adrian Lowcock, head of personal investing at Willis Owen, agree that the advantage of selling in May is questionable, “especially when you take dividends and currency swings into consideration”.
A weak pound, for example, would have benefited UK investors overseas in recent months, since their gains would have been worth more when converted back into the British currency.
Lowcock says that investors often look at short-term trends as a way of outperforming the market, but this can have more repercussions than benefits because getting the timing right is not an easy task. “A day missed here or there could have a dramatic impact, and transaction fees may also eat into performance,” he says.
So, while volatility in the stock markets is making investors nervous, a healthier approach is usually to try to ignore short-term noise and resist the urge to panic if shares dip. Instead, Dan Kemp, chief investment officer at Morningstar Investment Management, says investors should stay invested and focus on the long-term.
