Sell in May and Go Away!

At this time of year, investors are reminded of the old stock market adage “Sell in May and go away, come back again on St Leger day”, but is this famous saying worth following?

The phrase refers to the habit in years gone by for wealthy investors to leave the City and escape to the country in the summer months. When this happened a shortage of buyers would mean it could be a difficult time to sell stocks and shares. The St Leger classic horse race held in September would herald a return to the City and signify it was time to come back into the market.

The theory was that investors could ‘time’ the market because the summer months were a quiet trading period and the absence of buyers often meant that the price of individual shares would drift lower but recover in the autumn and winter months.

But nowadays, of course, the London Stock Exchange is open for business all year round and there is no absence of buyers and sellers in the summer months.

Diligent analysis shows that in recent years, more often than not, selling in May is a strategy which has seen investors lose out – and that is even before the charges for selling and re-buying a whole portfolio are taken into account.

The FTSE All-Share was launched in January 1986 and looking at the data, selling in May and buying back in September has avoided market falls in just 12 of 32 years. The remaining two thirds of the time following the strategy would have meant that investors miss out on market rises. A £10,000 investment that followed the FTSE All-Share, with dividends reinvested, would have now grown to £170,000 if left undisturbed, but following the sell in May and buying back in September strategy, an investment would have grown to only £119,000, more than £50,000 less.

Although all stock market investments can go down as well as up, statistics show that if investors are to follow one of the many old proverbs, the evidence confirms that the one to choose is “time in the market is better than trying to time the market”.

While the potential rewards from stock market investing is proven and clear, trying to time an investment to perfection is usually doomed to fail, particularly when based on out of date sayings.

Staying invested with only small tweaks along the way allows for the harvesting of dividends which over the long term represent a significant proportion of the return and is a good way to grow long term wealth

Clarion advocate a long term approach to investing and believe that investing with quality fund managers is the best way to produce consistent above average returns.

Note: The past performance of investments is not a guide to the future and the value of investments can and will fall in value as well as rise.