Investing Comment |
|
Your Money > Investing Comment Articles > Where s the...
|
By Richard Hunter, Hargreaves Landsdown
But how has this famous investment maxim, trotted out year after year, actually lived up to expectations? The St Leger festival begins on 9 th September this year, with the race itself taking place on Saturday, 12 th September. The St Leger is said to be the world's oldest “Classic” horse race, first run in 1776, and traditionally takes place on the second Saturday of September at Doncaster 's Town Moor track. The phrase itself harks back to the days when markets were rather more sedate and certainly less volatile. Stockbroking firms, often owned by a small clutch of partners, would see the summer period as a potential extended break, still mirrored today to a large extent by the UK Parliament, which returns on 12 th October after an 82 day break. Quite apart from the obvious holiday trips, the summer was also seen as the perfect time to entertain, and be entertained, by clients. A whole host of sporting events, from Henley to Ascot, Wimbledon to the Chelsea Flower Show, and Goodwood to Epsom, provided (and continue to provide) reasons to be out of the office on business. Going back even further, the land was a very important factor within the UK economy, and agricultural commodities were therefore the subject of much interest for the markets. The winter months were a time during which farmers were living from the proceeds of the most recent harvest and perhaps even investing it themselves. Come the spring and late summer, there was therefore much less activity as these months wore on, with the only potential worry being crop failures – and even these would have been known about some months before and therefore factored into prices. More recently, the thin trading volumes mean that any market moves (in either direction) can be exaggerated, whilst there are various other theories which have been floated in order to justify the saying. These range from the investment decision makers being away and therefore markets lack direction from the lower volumes resulting in less competition from prices. Some academic research has even suggested that, from a psychological perspective, the desire to be “elsewhere” when the sun is shining could result in less risks being taken and therefore shorter working days as investors spend less time at their desks. We have taken a snapshot below of the premier indices of the UK and the US and looked at their performance from the 1 st May and mid-September of the last ten years.
Can any conclusions be drawn from this table? The saying itself is suggesting that investors should not be in the market during this May-September period either because the market will underperform, or that nothing of any note will be happening. If we then assume that a 10% movement over this four and a half month period is significant, then the last ten years shows that the adage has some legs for five of the ten years. Of the other five years, investors would have missed gains (for the UK ) of 13.5% in 2009 and 12% in 2005. On the other hand, they would also have avoided losses of 11% in 2008, 20% in 2002 and 18% in 2001 by not being in the market. Statistically, of course, this is totally inconclusive. The fact remains that in the current trading world, markets are globally interlinked and therefore even the seasons themselves are at different times of the year. Market moving news can break at any time – and there is no reason to suggest that this is likely to happen at one time of the year more than any other. The simple fact is that markets will react to the current environment and trading conditions, regardless of the calendar month Perhaps when investors see the headline “Sell in May” inevitably used next year, they may wish to bear the foregoing in mind. Richard Hunter is head of UK equities at Hargreaves Lansdown Useful links: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
We have all heard this one before – “Sell in May and go away, don't come back until St Leger's Day”.