“Sell in May and go away” is a well-known saying in relation to share markets. Does it have any validity? Well, the first question that needs to be answered is “go away for how long?” The phrase is likely a take on an old English saying “sell in May and go away, come back on St Leger’s Day”.
Horse racing buffs may know that the St Leger Stakes is run in September each year. So, the rationale would be to sell shares in May and buy them back in September expecting the (buy) price in September to be less than the (sell) price in May. Easy enough. Let’s see how successful this would have been. We’ll keep it simple and not include buying and selling costs or tax implications.
We’ll use the ASX top 200 index (the XJO) to back test the strategy. We’ll compare the value of the XJO at the beginning of May to the value at the end of August for the last 20 years. Here’s the table of results:
Summarising these back tested results for 1997 to 2016:
- The “sell in May and go away” strategy would have produced a beneficial outcome in 11 out of 20 years. The average beneficial percentage is 6.2%.
- The “sell in May and go away” strategy would have produced a detrimental outcome in 9 out of 20 years. The average detrimental percentage is 6.5%.
“Sell in May and go away” would have produced only a marginal benefit if applied as noted here over the last 20 years. An interesting saying, but not a viable strategy.
Please note, this article is for general advice purposes only. It is not taking into account your particular circumstances or your personal finances. As mentioned above, this is a simplified analysis, and does not take into account certain financial implications (such as buying and selling costs and tax implications). If you wish to discuss the matter in further detail or wish to book an appointment to discuss your personal financial situation and future financial goals, please contact us to book an appointment with one of our advisers.