There’s a saying that suggests investors should ‘Sell in May and Go Away.’ I think it’s a mistake generally, and could be an especially big blunder in 2019. Let me explain why.
Historically, the summer months have seen poorer share price returns than the rest of the year. But that doesn’t necessarily mean shares will actually lose money in the summer.
UBS analysts have examined the S&P 500, and they reckon $100 invested in the index in 1928 and following the ‘Sell in May’ strategy would have grown to $5,800. But with the cash just left there for the whole period, the total would have come to $16,000.
I think the problem is compounded for those who invest for dividends too. I have shares in Lloyds Banking Group and Aviva, with forecast yields of 5.5% and 7.9%, respectively. If I sell both today, I’d need to get back in by early August to be sure I don’t miss the interim ex-dividend dates. I couldn’t wait until September or October when the tradition suggests coming back.
And for my current top buy candidate Royal Dutch Shell, which pays quarterly, you wouldn’t want to miss ex-div dates currently predicted for 16 May and 15 August. You’d have to be very careful of the timing of your sells and buys to avoid losing cash. And that’s for a strategy of no demonstrable long-term benefit anyway.
Where would you put your money during the summer? A savings account paying around 1% interest? Add in the charges you’ll have to pay to sell and then repurchase your shares, I’d say it’s looking even less attractive.
What about 2019 specifically? Well, 2018 ended on a real downer, with the FTSE 100 losing 15% over the course of the 12 months. Most of that came in the tail-end of the year too, so ironically, if you’d come back in September after selling in May last year you’d have been buying just in time for a big fall.
This year has been good, so far, with an 11% gain. But if you see that as a ‘Sell in May’ high, then I think you’d be overlooking two key facts.
One is that the FTSE 100 is still only 9% up over the past five years, despite many of its major constituents putting in impressive performances in that period. We’re far from a peak.
And as company earnings have been rising, so have dividends, and we’re looking at a forecast yield of 4.7% from the index in 2019. That’s down from 4.9% in Q4 2018 as prices have recovered a little, but it’s still significantly ahead of the Footsie’s long-term yields. And it suggests to me that shares are undervalued.
That undervaluation is surely in large part down to Brexit uncertainty. The banks are still suffering badly and are mostly on very low P/E multiples, folks are bearish on housebuilders, and there’s a general malaise across the market.
But the Brexit uncertainty is going to be ended this year, one way or another, and it could well be sooner rather than later. I think if you sell now, you could be missing out on a potential summer share price surge.
No, never mind selling, I think now could turn out to be one of the best times to be buying.
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Alan Oscroft owns shares of Aviva and Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.