Financial journalists presumably love the phrase ‘sell in May and go away, don’t come back till St Leger’s day’ because it makes for easy copy at this time of year. For investors, however, the expression’s only noteworthy quality is that it rhymes.
Over the years there will have been instances where it may well have been more profitable to sell your equity portfolio in early may, move into cash and then buy back in when the horses are under starter’s orders in the first week of September – but equally there will have been instances were you would have lost out.
Phrases such as ‘sell in May’ are only ever of any benefit if they explain something – if some sort of causal link is involved. Otherwise they are as helpful as the saying the US market will rise if a team from the east coast, or possibly the west, wins the Super Bowl – and, if it were not so wholly irrelevant, we might even have bothered looking up which one on Google.
Equally unhelpful, if perhaps more interesting, is the statistic unearthed by one US investment manager that, since 2009, there has been a 94% correlation between beer prices in Iceland and the S&P 500 index. Once again we have an apparent relationship between two facts but, importantly, there is no causal link.
The measure of any true investment ‘rule’ is whether it enables you to know when it does and does not work. The only certainties about ‘sell in May’ are, first, it will inspire a slew of financial articles at the same time every year and, second, The Value Perspective will happily seize the opportunity to point out the biggest driver of whether you make money is not rhyme but valuation.