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Justin Urquhart-Stewart on some old & tired investment phrases…

May, or so the statisticians say, is usually the lowest month for the volume of share transactions, and in fact for the summer as a whole there is usually a dip in volumes which can often be accompanied by slips back in values and indices. Hence the phrase “sell in May and go away, and don’t come back until St Leger day”.

In fact, that old rhyme was based around the London season on the basis that any city person from the ‘right background’ would, of course, be attending a good proportion of the ‘London Season’. From Henley to Ascot and Lords to Wimbledon, the social whirl would take away quite a few city folk, and that’s not including the summer sojourn in the south of France. Well, those were the days!

Now with inducement regulations controlling corporate entertainment, and a day at the tennis likely to come under the purview of the Bribery Act, opportunities for extensive time away from the office have been fast declining. However, holidays will have an impact and volumes are still likely to be slower. So, should we sell in May and go away?

The clear answer is NO. Another of those annoying phrases trotted out by older fogies like me is “it’s not timing the market but time in the market”. This little phrase actually is far more practical, as for all investors, their ability to time the market – consistently – is almost impossible. Oh yes, we can all get it right from time to time, but to do so on a reliable and regular basis would be astonishing. The fact is that by staying in the market, albeit with a well diversified portfolio, you would still be receiving those small but useful dividends which, with the power of compounding, are probably a far stronger driver to the value of your investments in the long term rather than the volatile and uncertain behaviour of the stock market indices.

This year is going to be an interesting time as the economic cycle means that we are moving into the phase of rising, albeit very slightly, interest rates. This will mean that there will be greater uncertainty, and this could give rise to more volatility. However, the eventual rise in rates is a sign of health in the economy and thus a small rise should have little impact if telegraphed well enough in advance. The flip side of this of course is that it will be some marginally encouraging news for those put-upon savers currently receiving paltry returns on their cash.

However, even if you did go to the trouble of deciding to sell in May and then to come back sometime later, at least you should think about the costs; even though you might be able to avoid some of the avaricious commission chargers, you will still be suffering the cost of the spreads between the buying and selling price.
Frankly, unless you have the gift of foresight, then there are many better things that you can do between May and that racing event at Doncaster. In fact, what I would suggest for canny investors looking for an opportunity to buy some value, is to just keep some cash on one side, so that when one of those odd events does occur and certain prices of stocks, indices or anything else for that matter suddenly drop, then you can be suitably prepared to dash in and buy a bargain. When they will occur none of us know.

If I may throw another tiresome old city phrase at you, then here is one that I have always found to be of sound logic: “There are those who don’t know, and there are those who don’t know that they don’t know”.

www.7im.co.uk

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