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Thursday 29 September 2016

Is it time to ignore the old adage 'sell in May and go away'?

Published 17/05/2015 | 02:30

Traders work on the floor of the New York Stock Exchange. Photo: Reuters
Traders work on the floor of the New York Stock Exchange. Photo: Reuters

The experience on the US stock market over the last 65 years certainly seems to back up the argument that it is a good idea to 'sell in May and go away'. That's if you look at statistics put together by Yale Hirsch, the US editor of the annual book, The Stock Trader's Almanac.

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"Mr Hirsch says that if you had US$10,000 in 1950, bought shares on the US market on November 1 of every year, and then sold your holding on April 30 of each year, your $10,000 would now be worth $785,000," said Aidan Donnelly of Davy.

"Whereas, if you bought on May 1 and sold on October 31 of each year, that $10,000 is now worth less than $1,000. Like all of these statistics, however, just because it works over a long period like this, doesn't mean it works every year."

Mr Donnelly doesn't believe that there are specific stocks which either perform, or don't, during the summer. "There can be lots of company specific reasons for stocks to perform," he said.

Robert Lockie, investment manager with the British wealth managers Bloomsbury Wealth, agrees.

"You can lose money on shares at any time, in the same way that you can make it at any time," said Mr Lockie. "Asset prices in a free market are driven by the aggregate of investors' expectations and thus their perception of the asset's value - in 2008, there was a banking crisis in the summer, which caused some shares to fall in value. News is no respecter of calendars."

Peter Brown of the IIFT believes that the 'sell in May' adage is not as important as it used to be.

"This is mainly due to technology," said Mr Brown. "In the past, traders and brokers were on holiday and the perception was that the market would thin out, especially if it had a good initial start to the year. Now, however, there is a lot of platform trading and you can see your investment portfolio on your phone. You can even trade on the beach. So the idea that you need to square up for the quiet summer months does not hold water anymore."

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