The investment world is full of sayings and little adages, cited as investment ‘rules’ but probably more like old wives’ tales. It is often possible to fit statistics to some of these.
New figures from Standard & Poors aim to prove the old saying “sell in May and go away, stay away until St Ledger’s Day”. They show that over last decade the stockmarkets in Finland, France, Germany, Greece, Ireland, Italy, Portugal, Sweden and Switzerland have all had negative returns on average over Summer months.
In fact, there has been no major European market where the average Summer performance is better than the start of the year. It is the final four months of the year that still contribute the most to full year stockmarket returns.
So, does this mean we should all move our investment portfolios to cash at the end of April and reinvest in the markets at the start of September, on the arrival of a traditional horse race? Probably not.
Investment markets are notoriously difficult to time. Missing out on only a few days of positive returns can often have a massive impact on the total return you get during the course of a typical year.
Nobody can accurately predict what investment markets will do in the short-term. An investment strategy where you try to time the markets might get lucky once or twice, but over the longer term is a losing strategy, particularly when you factor in the extra trading costs and tax implications of regular trading.
Selling in May and staying away until St Ledger’s Day might have worked during some time periods historically, but there is no guarantee it will make you any better off in the future.
