How to invest in the quiet market months
Here's how to invest in the quiet market months, since “sell in May” hasn’t paid off this year.
We've just had the St Leger Stakes – the final classic of the British flat-racing season – so if you believe in investment cliches, now should be an auspicious time to get back into the market.
“Sell in May and go away, come back on St Leger day,” runs the old saying, alluding to the long-standing belief that stocks tend to perform best in the winter months and less well in the summer. Supposedly, this pattern arose because market participants used to retreat to the country for leisure as spring and summer arrived so investing activity dried up. Whether this was really the case isn’t clear. In any case, there’s no reason why the trading habits of Victorian gentlemen should have any bearing on modern markets. Yet the idea that the summer is riskier persists and this adage has been making the rounds more often this year, reflecting a touch of nervousness in the market.
So is there any truth in it? Looking back to 1970 using the MSCI UK index, returns between the start of October and the end of April have been much better on average than returns between the start of May and the end of September. The winter months averaged 9.4%, while the summer months averaged -1.15% (yes, a loss on average). This pattern still holds if we move our start date to 1984 (when the FTSE 100 begins) or to 2000 (since when the UK market has not made much progress in price terms).
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Market averages can be misleading
However, averages can be misleading. From 1970 to 2023, the return from only being in the market between September and April would have beaten the return from holding all the way from September to September in 25 years. Yet holding for the full year would have done better in 28 years. We haven’t got to the end of September yet but, unless there is a big sell-off, this year looks like being more of the latter. Despite the volatility in late July, the market has been up since then. Note too that this is price return, not total return. If you factor in the dividends that an investor would have missed by not holding over the summer, the hit rate was worse.
Sell in May has probably only come out ahead one-third of the time. That said, the worst legs of some of the most savage bear markets have fallen in the summer months (1974, 2001-2002, 2008). So if you calculate the long-term performance of a strategy of selling in May and buying back in September every year, it can seem to beat buying and holding (depending on where you start). However, this is entirely due to a tiny number of extreme events. Knock them out and the outperformance fully reverses, suggesting that it’s a statistical fluke.
Arguably, some degree of summer weakness may still be a real phenomenon: May, June and September have negative returns on average and have been negative a little more frequently than they have been positive (see above). Yet the odds of avoiding losses by selling for the duration of the summer have been worse than a coin toss. Instead, we might tentatively conclude that, if anything, investors should look for chances to buy more cheaply in these months, given that markets have been more likely to rise in the rest of the year.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.
Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.
He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.
-
8 of the best properties for sale near ski slopes
The best properties for sale near ski slopes – from a luxury cabin in Geilo, one of Norway’s premier ski resorts, to a large chalet in Valais, Switzerland
By Natasha Langan Published
-
Cash hoarders take total UK savings to £2 trillion – why aren’t we investing?
Investment-shy Brits are hoarding huge amounts of cash in their savings accounts. We look at the case for saving versus investing.
By Katie Williams Published
-
India's stock market drops - why it's thrown investors into frenzy
Nifty 50, India's stock market index, has dropped 8% from a September record amid concerns of an economic slowdown and foreign investors pulling out
By Alex Rankine Published
-
Is now the time to buy Marshalls?
Former market darling Marshalls, a landscaping and building products supplier, looks too cheap. Is it time to buy this once-admired stock?
By Jamie Ward Published
-
Top UK stocks with healthy cash flows and dividend yields
Three promising UK stocks according to Alan Dobbie, co-manager, Rathbone Income Fund
By Alan Dobbie Published
-
Warren Buffet invests in Domino’s – should you buy?
What makes Domino's a compelling investment for Warren Buffet's Berkshire Hathaway, and should you buy the UK-listed takeaway pizza chain?
By Dr Matthew Partridge Published
-
4Imprint makes a strong impression – should you buy?
4Imprint, a specialist in marketing promotional products, is the leader in a fragmented field
By Dr Mike Tubbs Published
-
Invest in Glencore: a cheap play on global growth
Glencore looks historically cheap, yet the group’s prospects remain encouraging
By Rupert Hargreaves Published
-
How to save the dying UK stock market
The UK stock market is in long-term decline. To fix that, we must first recognise why equity markets exist and who they should serve
By Bruce Packard Published
-
Should you invest in Trainline?
Ticket seller Trainline offers a useful service – and good prospects for investors
By Dr Matthew Partridge Published