The quote continues “and don’t come back until St Leger Day”, which in 2016 will be Saturday 10th September. The adage recalls a long-gone era when the City would plan a leisurely social and sporting summer rather, than attending to portfolios. After St Leger Day the City would return, refreshed. For investors it made sense to be out of the market for the summer, buying back in when the senior stockbrokers returned.
That comfortable era ended with Big Bang in 1986, along with boozy lunches and the excesses of young men in the City exemplified by the Flaming Ferraris.
The Results
John Ficenec, Questor in the Daily Telegraph, said (17.04.16), “this year should be an absolute corker, Brexit etc”. However, according to Adrian Lowcock at Hargreaves Lansdown (LON:HRGV), the picture is pretty balanced: “Fifty per cent of the time it works, 50 per cent it doesn’t”. It may be an opportunity for traders, but when management fees and dealing costs are involved we should try to be smarter.
A similar proposition is the Six-Month Strategy, which is based on the well-known fact that the two indices, FTSE 100 and the FTSE All-Share, produce better returns in the six months from November to April than in the other half of the year.
I have tracked the strategy for the seven winter periods from 2009 to 2016, and the benefit before fees and dealing charges is 36.59%. That is not exciting, being an average of 5.22% a year. As with “Sell in May . . . .” when management fees and dealing costs are involved, not much is left.
Look at the Chart
The chart linked above shows the FTSE 100 index from April 1996 to April 2016. The chart shows that if you had invested on a Buy & Hold basis early in 2003 or 2009, you might have been awarded genius status. However, had you invested early in 2000 or 2008, then the dunce’s cap would be a better fit.
Short-term trends are for traders, but for cautious portfolios it is longer-term trends that should be watched. If you had invested early in 2000 or 2008 or 2015, your monitoring would have told you that the trend had moved against you and, maybe, you should consider a switch out of equities.
It is widely accepted that a fall in the market of 20% might be a suitable level at which to cut your losses. You decide, or consult an investment adviser.
So What?
“Sell in May . . .” makes headlines every year in the financial pages, but treat it as a ‘bit of fun’ and not a serious approach to investment management. The same applies to the Six-Month Strategy.
Managing investments is a challenging task and regular monitoring is essential. The trend of the market is your friend, and you should look for consistent above average funds or stocks.
Don’t forget, “When the facts change, I change my mind”, so sell the duds. Otherwise, you may be stuck in the mud.