Trotted out regularly at this time of year, the phrase ‘Sell in May and go away, and come back on St Leger Day’ makes one think that people actually do this. Wrong! As investors in the Woodford Equity Income fund found out this week when trading was suspended. Datastream reports that, using data from MSCI, global stocks shed $2 trillion in value in May 2019; this does not necessarily mean investors have been selling, but shows that share prices have been marked down. This headline, along with others like ‘the lowest level since..., biggest price drop since...’, are unhelpful and have no predictive value.
The second part of the ditty suggests investors have shifted proceeds of stock sales into cash. But what exactly is ‘cash’? Deposits in a bank? Bills of exchange? Bonds held temporarily? Real estate flipping, fine art and wine. We don’t usually think of investors’ cash as notes and coin, the traditional preserve of money launderers and drug dealers. More importantly, one can never really stand aside as every action, inaction and reversal has market implications.
Thus, we soldier on, having spotted intermediate tops in many major indices, shuffling our money and dividing it into smaller portions, parked at what we hope are the safer banks, in top-quality bonds and inflation-linked paper. M&G’s Bond Vigilantes point out that, if you’d bought 100-year Austrian ones in October you’d be up a cool 34 per cent, while UK 10-year linkers set a new record yield of minus 2.54 per cent. Also worth noting is that one day last week a major credit rating agency cut the rating of an issuer by 10 notches – all in one go – making it way too late to salvage the damage.