Investment Insider: Sell in May? I'll more likely be a buyer …
The adage about market timing is not borne out by history
Saturday 04 May 2013
It's that time of year again when we are supposed to sell our shares and go away for no other reason than because it's May. According to the stock market adage, "sell in May, come back St Leger day", which this year is on 14 September.
US investors have given our well-worn saying an American twist. They call it the Hallowe'en indicator, which asserts that investors should buy shares between October and April, and switch into short-term government bonds for the rest of the year.
Whether you prefer the British or American version, the guidance is based on market timing rather than fundamental reasons as to whether you should buy or sell shares. But how accurate has it been historically?
Over the past 29 years, the FTSE 100 has fallen on 14 separate years between May and September; it has risen on 15 occasions. The strategy would have helped you to sidestep the Asian currency crisis of 1998; the bursting of the dot.com bubble in 2001; and the US recession in 2008, when the UK benchmark index fell 13 per cent, 11 per cent and 7 per cent respectively.
However, by staying away between May and September you would also have missed out on a 13 per cent gain in 1989; a 10 per cent jump in 2005; and a near 16 per cent surge in the market in 2009. On average, following the "Sell in May" strategy would have left you 1.5 per cent worse off over the 29 years, besides any trading costs such as broker's fees and dealing spreads when you sell and buy back the shares later on.
There is something else to mull over. Many companies report their year-end results in February, which means that they distribute their largest dividend of the year – the final dividend – between May and August. By excluding yourself from the share register in May you miss out on this.
It would seem that the "Sell in May" strategy has been no more accurate than flipping a coin.
That doesn't mean you should never sell shares in the summer. Each investment should be judged on its merit and we should regularly review our portfolios, getting rid of investments that are not performing and reinvesting the money, regardless of the time of year.
Summer is usually when share traders go off on long vacations. That could help to explain the lull in market activity between May and September. It may also explain why share prices may be more volatile. But provided you have some idea of the intrinsic values of the shares you own then it is possible to take advantage of volatile share prices. So instead of selling in May, the summer months may prove to be good buying opportunities, especially with the lengths that developed economies are going to print money to lift asset prices. At some point quantitative easing will have to stop, but it is unlikely to happen this summer.
Personally, I am not a fan of market timing. Nor am I swayed by some antediluvian saying that has more to do with the state of London's sewers in Victorian times than today's hi-tech Britain. Nevertheless, I will be keeping an eye on the markets for bargain shares should they present themselves. I like to buy shares when they are cheap, and if others wish to ditch their shares this summer then I will be waiting.
David Kuo is director of fool.co.uk
Derek Pain: I'm cautious, but remain one of the few bulls in the market
Mark Dampier: How to get an income now that savings are past the 'use by' date
Thousands of UK investors could lose out following collapse of Secured Energy Bonds
Millions in line for compensation after being sold unnecessary credit card cover
Simon Read: If this is BT's idea of 'simple', beware if it gets complicated
- 1 Stephen Fry explains what he would say if he was 'confronted by God'
- 2 Venezuela Expo Tattoo 2015: Extreme body art from 'Vampire Woman' to 109mm earlobes
- 4 Ball pool for adults opens in London
- 5 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
Stephen Fry explains what he would say if he was 'confronted by God'
9 reasons Greece's experiment with the radical left is doomed to failure
Have we reached 'peak food'? Shortages loom as global production rates slow
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
Hard line on immigration could cost Tories the election
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
Day In a Page
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion