There’s a famous adage in the market to “sell in May and go away”, then return to buying stocks towards the end of the year. This comes from the theory that the market typically underperforms between November and May. Yet there are many sceptics about the idea, so who’s right?
Investment horizon
Depending on what index you use to track performance, along with how far back you go, the validity of selling stocks in May and buying back late in the year is very mixed. In some years, it works. In others, you’ll have given up the potential for more profit.
Yet the point I think some people miss is that it contrasts a short-term investor with a long-term one. If I’ve bought a stock that I think has the potential to do really well in the coming years, what’s the point of selling it for a few months? Sure, I could be able to buy it back at a slightly cheaper price. But the opportunity cost of not owning it could be massive. Further, if I think it’s got good potential, there’s no logical reason for me to want to sell it, unless it rockets higher in price.
When we look at 2026, the adage doesn’t make sense even at a broader market level. We’re seeing a strong stock market recovery. This is being fuelled by an increasing belief that the situation in the Middle East may be past the worst. If we do see further de-escalation and the easing of supply chain problems, the market could be set for a strong rally over the summer. In that case, I don’t think it makes sense to sell at all.
Of course, this doesn’t mean all stocks will go up. There may be situations where a struggling company deserves to be removed from a portfolio. But from a high-level view, selling now ahead of May doesn’t really make sense to me.
Trending higher
In terms of a company that I think is primed to do well in the coming months, I’ve got my eye on Investec (LSE:INVP). The specialist bank is up 43% over the past year.
The latest trading update from last month had plenty of encouraging signs. It spoke of delivering “a resilient performance” and of good progress in modernising the digital platform. Revenue growth is supported by increased client activity and positive net inflows into funds under management.
Between now and November, we’ll get further trading updates and quarterly updates on progress. Given the current momentum, I expect the updates to be positive, with the share price then potentially continuing to trend higher. On that assumption, I don’t think it would be wise to avoid the stock until the end of this year.
Of course, I could be wrong. If economic conditions deteriorate, loan losses can spike, wiping out earnings momentum. This could trigger a stock sell-off, meaning that a dip could be bought later in the year.
On balance, I’m thinking seriously about adding the stock to my portfolio. But I think Investec is a good example of a stock that disproves the notion of selling right now in favour of hanging on.
