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'Sell in May' investment strategy 'a bad idea', research suggests

Published 29/04/2016

Researchers claim to have debunked the old City adage
Researchers claim to have debunked the old City adage

The old adage "sell in May and go away, don't come back till St Leger Day" has long been a rule of thumb in the City, but research reveals an investor would have lost out on more than £40,000 over the past 30 years by following the proverb.

Anyone who took the saying to heart and sold stocks in May, only to buy them back in September, would have thrown away around a quarter of the gains made by the stock market over the past three decades, according to Hargreaves Lansdown.

Its research calculates that by following the strategy, an investor would miss out on an eye-watering £40,550 in returns on a £10,000 investment over the past 30 years.

St Leger is the day in September when the horse race of that name is run at Doncaster's Town Moor racecourse, this year falling on September 10.

It is short-hand for being out of the market during the less profitable summer months and fully invested in the winter.

But Laith Khalaf, senior analyst at Hargreaves Lansdown, said investors should ignore the saying.

He said: " All the evidence points to the fact that selling in May is a bad idea.

"Stepping into and out of the market for spurious reasons is an easy way to lose returns over the long term."

The research shows that the St Leger saying has been a losing strategy for 18 of the past 30 years.

Leaving the market from May 1 to September 1 means losing out on a 1.5% return in a typical year, as well as missing out on the compound growth.

An investor putting £10,000 in the UK stock market at the beginning of 1986 would now see their holding worth £150,780, according to the research.

But taking the money out of the market for May, June, July and August of each year would have reduced the pot to £110,230.

September is also statistically one of the worst months of the year for stock markets and a risky time of the year for investors to pile in.

While it is a losing strategy in most years, Hargreaves Lansdown said investors would have actually benefited in 2015 from buying in September as a Chinese slowdown and commodity price falls hit stock markets over the summer.

This was by far the exception to the rule and investors are advised not to try selling out until they approach the need to start drawing on their money.

"Without a crystal ball, moving money into and out of the market in the meantime is just as likely to cost you as it is to make you money," said Mr Khalaf.

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