In view of the highs on the stock exchanges, investors are apparently not yet afraid of heights. Although an old stock market adage advises you to exit, you will stay invested. Why is that better?
It could actually have been used as an excuse to make the profits of the past few months on the stock market: the old rule “Sell in May and go away …”, which means something like “Get rid of the stocks and then off in the summer foliage “.
Hardly any stock market wisdom is as well known as this one. May is considered a weak stock market month, the summer months are also rather poor, September is particularly bad and prices only pick up speed again in autumn. That is why the second part of the old saying goes: “… but remember to come back in September”, that is: “If you don’t get back in at the end of September, you will miss the connection”.
But what is it about the old calendar saying? Does it really bring more return? And, as a long-term investor, should you even pay attention to such seasonality?
Statistically, the Dax weakens in the summer
Statistically, there is a certain truth in the saying, especially with a view to the Dax . Since its start 33 years ago, June, August and September have been the three worst months on average.
But: Only in 15 of 33 years did the “Sell in May” strategy actually work – in the others it would have been smarter to take the price developments with you in the summer and thus make at least a small plus.
The stock market expert
Jessica Schwarzer is a financial journalist, bestselling author and long-time observer of global stock markets. The German equity culture is a matter close to her heart. Her fifth book “So that she doesn’t have to fish for a millionaire …” was recently published. At t-online, she writes every two weeks about investments and financial trends that complement a broadly diversified basic investment. You reach them on LinkedIn, Twitter, Facebook and Instagram.
The fact that the share sale in May still delivered an excess return is due to a few outliers. The internet bubble burst in summer 2002, for example, and the euro crisis escalated in August 2011 – both of which were associated with bad price setbacks of 20 percent and more. It would be nice if you had saved yourself that.
At the same time, however, the third-best month in the Dax history was also a summer month: In July 1997, the leading German index rose by more than 17 percent. Would you have wanted to stand on the sidelines?
That is exactly the problem with such stock exchange rules: They are often correct, but not always. Individual events distort the statistics. In addition, they are sometimes difficult to implement. And what many often forget: They cost money, namely order commissions. A final withholding tax may also be due. This is more of a hindrance to your long-term investment success and reduces your return.
Sell in May doesn’t work on Wall Street
This is also the conclusion reached by the experts at the fund company HQ Trust Asset Management, who set the rule for Wall Street and the broadly based S&P 500 index analyzed – with historical data going back to 1872. The result: In the past 150 years, the months of September and May contributed to investment success rather than a return, but increased risk.
Nevertheless, according to the analysts, “Sell in May” did not work: If investors had not invested from May to September, their performance would have been 6.3 percent per year. But it would have been much better not to sell at all. Over the entire period, the value development was a proud 9.2 percent per year. Just looking at the two weak months of May and September is too short-sighted.
And 2021? Admittedly, May was not really that sparkling on the trading floor. The major indices were more or less on the spot. The S&P 500 hardly got anywhere. The world share index MSCI World just managed a mini-plus.
There is currently a lot to be said for stocks
The same picture with the Dax: The fluctuations were small, but there were no losses. Rather, the indices are still trading near highs, and some have even reached new highs in recent weeks.
There was more going on with the individual stocks, and the industry rotation is going on lively, i.e. out of technology stocks and into more cyclical, economically sensitive industries. But if you have invested in ETFs on broadly diversified indices, then your portfolio should hardly have fluctuated in value in May.
The question is whether it will stay that way. Was Sell in May 2021 a good or bad idea? There is currently a lot to be said for holding on to own shares. The world economy continues to recover, corporate profits are bubbling up again, the governments’ economic stimulus programs are quite lush, the monetary policy of the central banks remains ultra-loose and there will be no interest rates for the time being.
Don’t just buy by looking at the calendar
Of course, minor price setbacks or major corrections on the stock market are never excluded. And especially in the quiet summer months, minor triggers are often enough to make prices fluctuate. Overall, however, there is more to be said for staying invested.
Also in the past year it would not have been a good idea to stay away from the stock market in the summer months. On the contrary, because the recovery rally after the big crash in February and March slowly picked up speed.
As a long-term investor, you can sit out such turbulence or maybe even use it for acquisitions. Buying or selling with just a calendar in mind is not good advice.
Even if there were phases in which “Sell in May” was right and generated excess returns, there are just as many in which it was not. The time of year should therefore not be a decision criterion for your system – especially not with a view to basic investments like in the S&P 500 or the MSCI World.
T-online and its authors and columnists prepare all articles with journalistic diligence. t-online points out that the texts are not a substitute for advice and, in particular, do not constitute investment advice or a recommendation to buy or sell securities.