Relying on proverbs for investment advice is not the best of ideas, according to a leading financial expert.
Investors often trot out the rhyme ‘sell in May and go away, don’t come back until St Leger Day’ as a proven strategy.
The phrase has no religious meaning – it’s all to do with the City closing for the summer while bankers, stockbrokers and financiers attended the social whirl of Royal Ascot, the Henley Regatta, tennis at Wimbledon and the like.
During this time, markets were generally static until the great and the good returned to work – around the date of the St Leger horse race at Doncaster at the start of September.
However gentle Anthony St Leger may have been, he was no saint, but the race was named after him.
Data shows how the strategy works
St Leger was an Army officer and MP for Grimsby.
Unfortunately, according to Fidelity International, research has shown that following the St Leger’s Day advice could cost investors money.
The firm has taken market data from the FTSE All Share Index for the past 21 years and compared the returns for the period between May 1 and September 1 each year.
The result was investors would have made a profit in 11 out of the 21 years if the ignored the St Leger adage and stayed invested between May and September.
Tom Stevenson, investment director for Personal Investing at Fidelity International, said: “The adage does not hold water. The analysis shows that if someone stayed invested, they would have a 50% chance of making a profit between May and St Leger Day.
Time in rather than timing
“Over the past decade, staying invested would have returned a profit for six years, while the reverse would have applied for the first 10 years of the period we looked at.”
Stevenson explained that trying to guess the best time to sell is notoriously difficult for investors.
“It’s just a gamble really,” he said. “But leaving the market can be expensive when you take charges, tax, lost growth and any other costs into account. Frequent dealing is expensive.
“Staying invested is best because missing a good trading day can make a real difference to the value of a fund over time – but so can the bad days.”
If you want an adage to follow as an investor, Stevenson suggests ‘time in the market is better than timing the market’ works better than the phrase about St Leger Day.
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