Sell in May? First look at the data. | Fin24

Sell in May? First look at the data.

May 02 2019 10:59
Schalk Louw

It’s hard to believe, but we find ourselves in May, yet again. 

Every year I remind those investors who believe in myths and sayings to ensure that the actual data supports whatever they believe to be true. 

As I was writing this, the FTSE/JSE Capped Swix All Share Index had already strengthened by 9.6% since the end of 2018 (up to 24 April 2019) and it seems as though the markets are starting to make more noise now than when they were under pressure, especially if we consider the fact that we have a massive election coming on 8 May. 

Throw the fact that US markets reached new heights into the mix and you’re left wondering whether it may not indeed be time to “sell in May and go away?” 

I will answer this question later.

First, let me present the facts surrounding the data. 

Sell in May and go away?

-If you had sold your shares at the end of May every year since 1960 (i.e. for the last 59 years) and stayed out of the market until 31 December of each of those years, you would have lost out on 7.7% per year (excluding dividends) of the FTSE/JSE All Share’s annual return of 11.6% per year over this period. 

-Let’s take this statistic one step further: Over this 59-year period, the market performed better between the end of May and December of each year and delivered positive returns 61% of the time.

-A few of you may point out that the saying is actually based on the idea that you should try to avoid the month of May completely, therefore selling before May. Yet, again, the data proves that this is nothing more than a myth. 

On the contrary, with an average return of 1.2% per May over the last 59 years, it’s been the fifth best month to be invested in. 

If you really have to take a critical approach to this, you would find that June was actually the month to avoid, seeing that it has been the only month of the year that delivered average negative returns (average of -0.31%) over this 59-year period. 

What is the solution?

It may sound like a sales tactic and even a little like a cliché, but it’s not about timing the market. It’s about time itself. 

Longer term trend of the FTSE/JSE All Share Index

Schalk Grpah

Source: IRESS

Historically, the general stock market trend is upwards. 

Stock markets are trading higher today than they were 10, 20 or 50 years ago. 

In fact, the FTSE/JSE All Share Index delivered a total return of 15.2% per year to investors over the last 20 years (March 1999 to March 2019). 

This is despite the fact that we were on the brink of a great recession 20 years ago, that we experienced an even greater correction ten years later, two wars, one massive global market collapse and negative five-year real growth up to the end of 2018.

But this upwards trend didn’t come with one-way traffic all the way – and definitely not without potholes. 

These potholes are known as market corrections and they’re as natural to the markets as seasons are to Mother Earth. 

Don’t waste your time on sayings and myths. 

Rome wasn’t built in a day, and it’s highly unlikely that you’ll be able to build a successful share portfolio in a day, especially if it’s based on hearsay. 

These things take time. 

Schalk Louw is a portfolio manager at PSG Wealth