There’s an old investment adage that suggests ‘selling in May and going away’. The same quote refers to not buying again until mid-September. The data supporting this suggestion’s very mixed.
As a long-term investor, I don’t focus on trying to time the market year by year. Yet with all the volatility in UK stocks so far this year, it got me thinking as to whether this notion would have worked so far.
Not the right idea
In order to set up the review, I’m going to ignore any potential profit an investor may have made when they sold the stocks at the beginning of May. The point I’m trying to isolate is the difference between the selling price in May and the price now.
At the beginning of May, the FTSE 100 was trading at 8,495 points. At the moment, it’s at 9,095 points. So in almost two months, the index has risen 7.05%. Although we’ll have to wait and see where the market goes in the late summer and early autumn, it’s a clear sign that selling in May and going away didn’t work this year.
If I had followed this strategy this year, the problem would be that I’d be buying back UK stocks at a higher price (on average). Put another way, if I had simply held the stocks, I’d be up another 7.05%. Of course, reducing the risk of a portfolio is something I believe in. However, this can be achieved in other ways rather than selling shares and holding cash.
A runaway stock
A good example is Barclays (LSE:BARC). The stock’s up 59% over the past year, trending higher. At the beginning of May, the stock was at 294p. It’s now at 370p!
The recent move has reflected strong financial results, with momentum seen as the trading division navigated the market volatility from the initial fallout from Trump’s tariffs. In Q2 results, the bank reported profits of £1.7bn, up 34% from the same period last year.
Further, the business is now almost halfway through the three-year cost-cutting programme. Benefits are now starting to be felt, including better diversification of revenues. Previously, this had been overly focused on the investment banking arm, which was known for volatile swings in revenue performance.
The outlook for the business looks strong, and with a price-to-earnings ratio of 10.31, I don’t believe it’s overvalued. However, one risk is regulatory shortcomings. Earlier this month, it was fined £42m for failing to manage risk around money laundering.
The strong trajectory of the business means if an investor owned the stock earlier this year, I don’t think trying to time the market and sell in May would have made sense. Even though there’s always a risk of a share price moving lower, the long-term outlook means that in most cases, a buy-and-hold approach makes more sense then trying to time the market.
