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Go away

Created:
6 May 2008
Written by:
Algy Hall

The old stock market adage of "sell in May, go away, and don't come back until St Leger's Day" frequently proves apt. Last year, for example, those who bailed out of the FTSE All-Share on the first of May having bagged a 11.25 per cent gain in the preceding seven and a half months would have missed a 3.1 per cent fall by the time St Leger's came around on 15 September. In fact, according to data from Thomson Datastream, over the past 10 years between May and St Leger's Day, the FTSE All-Share has only twice outperformed the preceding period. What's more, had you backed the All-Share from May to mid-September over those 10 years you'd have actually seen an average drop of 0.9 per cent, whereas the mid-September to May period saw an average rise of 5.8 per cent. Indeed, the All-Share has fallen during the adage's designated sell period in five of the past 10 years compared with three falls during the buying season.

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This May also looks like it could be shaping up as another selling opportunity. That's because suddenly, the market seems buoyed by a sense of optimism which may not last. Equities have had a good run since the FTSE 100 closed at just above 5,400 in mid-March, albeit with commodity-related stocks doing most of the running. And now it looks like there are further grounds for optimism coming from better-than-expected US economic data and signs that actions taken by central banks have averted a full-on banking system meltdown. Yet the 'real economy' looks increasingly like it is in real trouble, and it's reasonable to think that concerns relating to this will reassert themselves shortly.

Still, making bold bets on which way the market will go is a fraught game and anyone who bails out entirely runs the risk of missing out on the potential for a strong recovery following the All-Share's 4.3 per cent loss since St. Leger's day 2007. Indeed, the situation looked bleak when May came around in 2003, but investors who headed for the hills then would have missed out on a 12.7 per cent rise in the All-Share following a 3.7 per cent loss in the preceding period.

MORE FROM THE SECTOR WATCHER...

To read other articles written by Algy Hall, IC's Sector Watcher, visit http://www.investorschronicle.co.uk/Columnists/SectorWatcher/

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