DON’T ‘SELL IN MAY’?

Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE -

The old adage to ‘Sell in May and go away’ ad­vises in­vestors to sell their stock hold­ings in May and then get back into stock mar­kets in Novem­ber — so as to avoid the tra­di­tional sea­sonal de­cline in eq­uity mar­kets be­tween May and Oc­to­ber.

How­ever, the US in­sti­tu­tional bro­ker Strate­gas be­lieves the old say­ing may prove wrong this year. Strate­gas ex­am­ined the per­for­mance of the S&P 500 (a stock mar­ket in­dex that in­cludes the 500 largest com­pa­nies in the US) since 1950.

“His­tor­i­cally the sum­mer months may not be the best time for S&P 500 per­for­mance — but it is im­por­tant to put that into the con­text of cur­rent mar­ket con­di­tions,” said Todd Sohn, a tech­ni­cal an­a­lyst with Strate­gas. “When you are in a mar­ket up­trend, per­for­mance dur­ing May to Oc­to­ber is usu­ally stronger than his­tory sug­gests. Based on our data, ig­nor­ing the old adage is likely prefer­able this year.” A mar­ket up­trend, ac­cord­ing to Strate­gas, is when the S&P 500 is trad­ing above its 10-month av­er­age. Strate­gas’s fig­ures show that the S&P 500 be­gan this month in an up­trend.

His­tor­i­cally, stock mar­kets have tended to per­form more poorly over the sum­mer months be­cause in­vestors are often away on hol­i­day — and mar­kets are qui­eter. “His­tor­i­cal anal­y­sis sug­gests that sell­ing in May works 90pc of the time across de­vel­oped mar­kets,” said Peter Brown, one of the founders of Dublin firm Bag­got In­vest­ment Part­ners. “How­ever, I don’t be­lieve in sell­ing in May this year. I think mar­kets will be flat this sum­mer. So even though in­vest­ment re­turns may not be that high, it would be best to stay put.”

Of course, any­thing can hap­pen in stock mar­kets and the re­cent eerie calm on Wall Street has some in­vestors wor­ried that some­thing nasty could be about to hap­pen.

It is time spent in the mar­ket — rather than tim­ing the mar­ket, which mat­ters most when it comes to in­vest­ment re­turns, ac­cord­ing to David Hillery, senior in­vest­ment strate­gist with Davy.

“As a gen­eral rule, in­vestors should stay in the mar­ket,” said Hillery. “Anal­y­sis shows that an in­vestor who put €1m in the mar­ket in 2001 would have around €2m to­day. How­ever, if you missed the 10 best days in the mar­ket since 2001, you would have made a re­turn of about 9pc. If you missed the best 30 days, you would be in neg­a­tive ter­ri­tory.”

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