Is it too late to sell in May and go away?

As hard as it is to believe, we find ourselves in May yet again, and every year I remind investors who believe in myths and sayings to make sure that the actual data supports what they believe to be true. As I was writing this (25 April 2022), the FTSE/JSE All Share Index (JSE) had already declined by 9% from the overall highs (closing) it reached in March this year, and now finds itself in negative territory (-4%) so far for 2022. In the USA, things aren’t looking too good either, with the S&P500 that has already declined by 11% (in USD) since its peak in January. Given all the negativity surrounding our markets, will selling in May actually be appropriate advice this year? Or is it still just a catchy little rhyme that the media uses each year to create sensation?

I will answer this question later. First, I would like to 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 62 years) and stayed out of the market until 31 December of each of those years, you would have lost out on 6.04% per year (excluding dividends) of the FTSE/JSE All Share’s annual return of 12.11% per year over this period.
  • Statistically, this picture becomes even more interesting when over this 62-year period, you only have a look at the periods where the JSE was still trading in negative territory from the start of each of those years until the end of May of each of those years. Over this 62-year period, the JSE still traded in negative territory at the end of May 13 times, while we only saw a further decline from that point onwards three times. In fact, the average return in these 13 cases came to 16% over the following seven months.
  • Let’s take this statistic one step further: over this 62-year period, the market delivered half of its annual return between the end of May and December of each year and delivered positive returns 65% 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, but again the data proves that this is nothing more than a myth. On the contrary, with an average return of 1% per May over the last 62 years, it has clearly not been the worst month to be invested. 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 over this 62-year period.

  Average 1-month return
January 1.30%
February 1.08%
March 1.46%
April 1.62%
May 0.99%
June -0.14%
July 1.86%
August 0.66%
September 0.16%
October 0.54%
November 0.95%
December 3.17%

Table 1: Average FTSE/JSE All Share monthly return for each month between 1960 and 2022 (source: Iress)

So, at an average return of -0.14% per June, it’s really difficult to justify a “sell in May” from a cost perspective. In short, the data surrounding selling May proved really interesting, but inconclusive.

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.

Graph 1: Longer term trend of the FTSE/JSE All Share Index (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 13.04% per year to investors over the last 20 years (22 April 2002 to 22 April 2022), despite the fact that we saw the Iraq War 20 years ago, along with an international financial crisis in 2008, junk status downgrades in South Africa and a global pandemic in 2020.

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 investment portfolio in a day, especially if it’s based on hearsay. These things take time.


Disclaimer

The opinions expressed in this blog are the opinions of the writer and not necessarily those of PSG. The information in this blog is provided as general information. It does not constitute financial, tax, legal or investment advice and the PSG Konsult Group of Companies does not guarantee its suitability or potential value. Since individual needs and risk profiles differ, we suggest you consult a qualified financial adviser, if needed. PSG Wealth Financial Planning (Pty) Ltd is an authorised financial services provider – FSP 728

Schalk Louw

As Portfolio Manager at PSG Wealth Old Oak and with over 20 years’ experience in the investment industry, Schalk has consistently delivered solid returns to his clients and has certainly become one of South Africa’s most well-known strategists. He started his career in 1994 at the stockbroking company, Huysamer Stals (later ABN Amro). He joined SMK Securities in 1997, (later became BoE Personal Stockbrokers) and was later appointed as director and branch manager. In 2001 he co-founded Contego Asset Management and managed the company as CEO up to March 2014, after which he joined PSG Wealth Old Oak. Schalk has also become a regular household name with investors, with his reports being published in many of the national press. He completed his MBA in 2008.

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