With several issues on the agenda in the next six months including the British EU referendum and US elections, some believe the best investment advice would be to sell in May as Brexit risk looms and the credit cycle turns.
But does this always hold true and is it a good strategy to follow? Dryden has looked at the FTSE All-Share Index over the past 30 years to see if there is any truth to the adage.
According to his research the average portfolio would be about 11% bigger for investors who stayed put rather than jumping in and out of the markets to avoid holding stock during the summer period.
“It’s strange that this old saying sticks, he said, because the transaction costs of dipping in and out means that investors are actually shooting themselves in the foot. It pays to stick with the ups and downs associated with market volatility to help realise the maximum return potential of stock market investments over the longer term,” he said.
The “sell in May and go away; don’t come back till St Ledger’s Day”, which it is called in full, is an investment strategy for stocks based on a theory (sometimes also known as the Halloween indicator) that the period from November to April has significantly stronger growth on average than the other months.
However, Dryden’s research revealed that in merely 11 of the last 30 years the “sell in May and go away” strategy would have generated positive returns for investors. And over the last 20 years, 29 of the best 50 trading days of each year occur between the months of May and November on average. “So, mathematically, investors following the ‘sell in May’ rule would by definition have missed more than half of the market’s best days,” explained Dryden.
“Investors who attempt opportunistic market timing all too often end up being their own worst enemy – and that goes for the pitfalls of the misguided ‘sell in May’ theory as well,” he added.
