Stocktake: Should investors sell in May and go away?

The old “sell in May and go away” adage sounds like bunkum, but is it?

Drew Dickson of London-based Albert Bridge Capital is a value investor, not a seasonal strategist, but curiosity caused him to take a look at the data. The first thing, says Dickson, is that since 1940, every single month has shown an average positive return. All months are winners.

Still, there is a big difference between May-September and October-April returns. US stocks averaged gains of 3 per cent in the five months from May to September, compared to 9.4 per cent in the seven months from October to April.

Put another way, the S&P 500 has seen cumulative May-September gains of 658 per cent over the last 82 years, compared to 95,000 per cent between October and April.

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There “may be something to this ‘selling in May and going away’ thing, especially over very long time horizons’, says Dickson.

Of course, it’s not a practical strategy for most investors. It’s also likely to be a fluke – “random nonsense”, as Dickson puts it – “but history suggests that if you’re waiting to dip back into equities, you should probably wait a few months”.