It’s sell in May time again!
And time for many articles appearing on whether to actually sell in May or not. So, should one sell?
The issue is a little tricky. It is certainly the case that equities over the 6-month period May to October tend to under-perform the November to April period. (We have covered this in many previous posts.)
However, just because the market under-performs May-October doesn’t necessarily mean that the market experiences negative returns over these summer months.
The following chart plots the 6-month May to October returns for the FTSE All-Share Index since 1982.
As can be seen, since 1982 the market has actually risen more often than it has fallen over the May to October period – equities have had positive returns in 20 of the past 35 years. The market has risen in ten of the last 14 years. And last year, 2016, the FTSE All-Share increased 10.1% May to October.
So, the case is not necessarily looking strong to sell in May. Especially, if one adds in the argument that being out of the market an investor will forego any dividend payments over the May-October period (and at a time when interest rates are very low).
An argument in favour of selling might be that, although the market often sees positive returns in the period, when the market does fall, the falls tend to be quite large. So, since 2000, the average return May-Oct has been -1.1%. Admittedly, this is quite heavily influenced by the fall in 2008, which might be regarded as something of an anomaly. But over the longer periods, the average returns are negative as well (-0.1% from 1982, and -1.0% from 1972).
In conclusion, whether to sell in May should likely depend on an individual’s attitude to risk and their transaction costs.
Further articles on sell in May.