You may have heard of the investing approach to “sell in May and go away”. The idea is to hold shares from November through April and switch to cash from May through October. Some investors believe such a strategy could provide higher returns than a conventional buy-and-hold strategy.
I wouldn’t sell my stocks in May
There are many academic studies on the topic and the results are for the most part inconclusive. For example, this year’s brutal selling started in February. But then 2020 is no ordinary year for anyone.
This month has seen a large number of shares stabilise somewhat. So far in April, the FTSE 100 and FTSE 250 are up about 1.4% and 3.8% respectively. And these returns do not include any dividend payments that you would have have received from holding your shares long term.
On the other hand, if you look at historic prices, between May and November 2019, the FTSE 100 largely moved sideways rather than falling. And June and July were quite strong months for the index. Similarly, FTSE 250 investors saw robust returns in September and October 2019.
Therefore predicting what the indices may do in May or the summer months this year is anyone’s guess.
Yet investors realise that there are increasing fears the Covid-19 pandemic will crimp economic growth. In the coming days, if we were to get worrying health or economic news, then investors may indeed be tempted to sell in May (or any other month) and ask questions later.
Likely opportunities in any market
In investing, risk and return go together. Whenever markets decline considerably in a matter of weeks, many investors wonder if they should sell and turn their paper losses into real losses. Each portfolio is unique and different investors have different risk/return profiles.
However, history tells us that markets tend to recover from losses, only to make new highs. Yet timing the market is extremely difficult, especially for the average investor.
Instead, with a bit of due diligence, investors can now find robust FTSE shares that may be appropriate for many portfolios. And their prices for the most part are a lot cheaper than they were in January.
There are several companies I’d consider buying, especially if there is any further weakness in their share prices in the coming weeks. In the FTSE 100, they include BT Group, British American Tobacco, Ocado, Pennon Group, and Smith & Nephew.
In the FTSE 250, I like Cranswick, Dechra Pharmaceuticals, Softcat and Tate & Lyle as potential long-term investments.
Making the right decisions in stock market investing is not necessarily about constantly picking winning shares and funds. Rather it is about having a long-term strategy. So if you are unsure where to begin, a low-cost FTSE 100 or FTSE 250 tracker fund might also be appropriate.
Investors may be hoping that we skip any potential seasonal weakness after the brutal beating shares have received in the past few weeks. Yet it is not possible to know if we can. And shareholders could once again get their faith tested in the coming weeks if FTSE stocks retreat again.
In the short run, I’m expecting continued volatility in stock markets as well as in the value of the pound and prices of most commodities.
Personally, I’m a long-term investor. And I’m determined not to get caught up in any May madness.
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tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Pennon Group and Softcat. 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.