It’s the time of year when the old ‘Sell in May and go away’ theme starts popping up in investment circles. It’s based on the idea that stock markets become less active from May through to October and tend to perform less well. And it seems that April 2020 was the second-best April in the past decade for the FTSE 100, when eight out of the ten years produced positive returns.
That fits in with the idea of share sales peaking in April, before any post-May decline. According to analysis by Money Observer, April has been the best month for UK shares since 1970. On average, UK shares gained 2.6% each April over that period.
So, does demand for shares start to cool off in May, and do share prices really start to fall back? I don’t have the means to dig all the way back to 1970. But I have looked at the May performance of the FTSE 100 over the past five years:
|FTSE 100||End April||End May||Change||%|
While that might not be sufficient data to work out long-term trends, it doesn’t support the idea that shares fall in May. There’s volatility for sure, but the overall May trend seems to be positive. The average May gain for the FTSE 100 over the past five years comes out at 0.67%.
Cracking FTSE 100 return
If you could secure a consistent monthly return on your investments of 0.67%, you’d be earning 8% per year. So, at least over the past five years, May has outperformed the FTSE 100 average. Perhaps not a month to be selling, then.
If there ever was much of a drive to sell in May in the past, I suspect investors are now becoming more rational and putting the idea behind them. After all, these old stock market sayings stem from days long gone. Stockbrokers wore suits and braces, and departed their desks for the summer for the racing season. Then, when days started to get gloomier, they got back to the business of creaming fat fees off other people’s money.
Today, stockbrokers are mostly made of computer chips and work on just a steady supply of electricity. And they charge far less in fees. So maybe there’s no logic to it now?
Sell this year?
Even if selling in May ever made sense, it surely can’t be a good move in May 2020, can it? On 1 May this year, the FTSE 100 started out at 5,901 points, its lowest since 2012. That’s already 17.6% up since the low of 4,899 set when the rush of the Covid panic was in full force in March.
No, I think the odds are surely in favour of a positive May this year. If there’s any signs of let-up in the coronavirus lockdown before the end of the month, we might see some nice gains.
But I say the best thing to do is forget where the the FTSE 100 might go from month to month. Instead, seek top company shares at attractive prices, with a view to holding for a decade or more.
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Views expressed 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.