Sell in May and go away

[Ozzie Osmond]

"Sell in May and go away" is a well-known trading adage that warns investors to sell their stock holdings in May to avoid a seasonal decline in equity markets. The sell-in-May-and-go-away strategy is where an investor sells his stock holdings in May and gets back into the equity market in November, thereby avoiding the typically volatile May-October period. This strategy is based on the historical underperformance of stocks in the six-month period commencing in May and ending in October, compared to the six-month period from November to April. [Courtesy of Investopedia.]

Well, 2016 has debunked that good and proper. So where next?

The huge surge (+15%) in markets since May this year has upset the usual program where I ignore investment matters until the long dark evenings of Autumn. Instead I've found myself compelled to take some profits, unsure of what's going to happen when,

• Everybody comes back from the summer beaches to face reality,
• The impending US elections bring uncertainty towards November, and
• The Brexit slowdown shows clearly in UK figures towards the end of calendar 2016.

Any thoughts about how things may pan out over the next 6 to 12 months? 7000 looks a major hurdle for FTSE.

[Ozzie Osmond]

All of which leads us to the very real issue of sticking cash under the mattress. It does seem insane to me that cash returns are negative real, but I guess it's still a diversification for overall risk management purposes.

[Ozzie Osmond]

Ginge R said:

It's far easier to lose money than it is to make it.

That's got me thinking; with a moderately sensible approach to equity investments is that statement "true" or "false"?
On balance I think it must be "false", which seems surprising. But I suppose that's the whole point - investing isn't gambling.

What never ceases to amaze me is the staggeringly high failure rate of new business start-ups, especially restaurants.

[Ozzie Osmond]

Have you visited the distillery at Lynchburg? It's an interesting trip. Naturally I attended for purely educational reasons...

Amongst other things they make a very good whiskey cake. Apparently such things were exempt during Prohibition. Hic!

[Ozzie Osmond]

....must have been the altitude.

[Ozzie Osmond]

swindler said:

Don't forget there is a risk to holding cash in any particular currency. We're in the middle of a fairly unprecedented set of currency wars.

Very true. Since my spending is in £sterling there's a certain comfort in holding that currency rather than any other.

[Ozzie Osmond]

bad company said:

I'm not selling as I think there MAY be more to come but I am now holding rather than re investing dividend income. If the market stays at this level I may well spend that money, otherwise I will re invest if the market goes down.

Yes, it's all a bit Hotel California when there's nowhere else to put your money. All I've done is increase cash a bit and will hold tight for the ride - as usual! Since my strategy involves such a big proportion of equities this should suppress the risk of forced sales in a collapsed market.

[Ozzie Osmond]

I never know whether to buy in lumps and sell slowly or whether to buy slowly and sell in lumps. Does the risk profile ACTUALLY change or does the risk profile simply FEEL different?

What always bothers me is that the flip-side of avoiding big falls is missing out on big rises!

Equally well, with markets now sitting around their all time highs it would perhaps be reckless for a new investor to suddenly go "all in".