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MARKET COMMENT
By
Carburton Street, London -- The City loves its well-trodden sayings. One of the most-used ones at this time of the year is to "sell in May and go away". The theory is that investors should ditch their stock holdings in May and transfer their investments into bonds, which are supposed to provide a safer haven for their investment during this "dry period". The rest of the saying advises investors to return on St. Leger Day, on the 15 September. Our US cousins have hijacked this beloved saying and renamed it the Halloween indicator. This asserts that investors should be heavily into stocks between the months of October to April and switch into short-term government bonds for the rest of the year. Whether you prefer the UK or US version, both these contentions rely on the premise that market-timing strategies are able to outperform the efficient market. However, over the last eight years this peculiar form of market timing worked on just three occasions -- 1994, 1998 and 1999 -- and failed abysmally in the other five years. Statistics can be fun but, more importantly, since 1993 the FTSE All-Share Index has appreciated 110% from 1365 to 2872, or at just over 11% per year compounded. The argument, then, is whether a market timing strategy is able to beat the long-term buy-and-hold method. There is a rule of thumb from fans of the buy-and-hold school of investment that approximately 80% of a stock's annual gains are achieved in just a dozen trading days during the year. Being out of the market for any of those twelve days can reduce your returns significantly. Investors should remember that old wives' tales have no place in this day and age of the efficient market place. "Selling in May and going away" is no more valid than blindly holding on to a stock.