Thursday, 05 May 2011 - 20:00
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Sell in May and Go Away?
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There is an old adage in the investment industry that goes along the lines of “Sell in May and Go Away”. The theory goes that investors are better off if they sell their shares at the beginning of May; put the money in the bank (cash), and then only look to buy again at the end of October. In this way they would be in the market for 6 months and in cash for 6 months of each year.
With the ALSI down over 4% on the first three trading days of May, I got thinking about this saying.
Is there any truth in the tale?
Before going any further, any analysis not based on fundamental logic/reasoning can’t be taken seriously. The below analysis should merely be seen as an observation, not some kind of investment strategy. As Nassim Taleb (author of Fooled by Randomness and The Black Swan) says, humans have a way of creating patterns in places where none exist.
I took a look at return data of the local All Share Index over the past 41 years (starting in 1970). When comparing the returns of the market from 1 May – 31 October (bad months) to the rest of the year we can see that there is a marked difference between the two.
We can further see from the chart above that the ALSI still manages to beat cash in the bad months, and investors would therefore still be better off keeping their money in the market (albeit with significantly more volatility than cash). Global markets seem to follow the same trend of a better November to April period (23 years of data).
The average return is a full 6.5% higher in the November – April (good months) when compared to the bad months. Taking a look at the outlier years, we see that both periods still both experienced high maximum and low minimum returns. This adage therefore doesn’t work all of the time. In fact, the bad months had a ‘better than average return’ in 18 of the 41 years (44% of the time)
When breaking down the returns into the individual months we can see that these 6 monthly returns are particularly skewed by a few outlier months, namely December (historically a good month) and June (historically a bad month).
In fact, if we shifted the bad months to 1 June – 30 November there would be an even greater difference in the return profiles.
It is clear that over the past 41 years investors generally received a better return in the period 1 November – 30 April than 1 May – 31 October. What is less clear is whether this will be the case going forward.
Remember that it is fairly straight forward (when armed with some Excel skills) to mine and manipulate data to show trends, it is another matter altogether to make sensible conclusions from these trends.
If successful investing was as simple as investing in the ALSI for the 9 months when markets have historically given you cash beating returns and sitting in cash for the other three months, everyone would be able to quit their day job. One would need to look deeper at the reasons for the disparity in the returns in order to make any sensible conclusion.
At Seed we continue to look at the fundamental value of the various asset classes before making decisions to buy or sell the assets.
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Thu, 05 May 2011
The Dow and S&P 500 dipped on
Thursday after a weak labor market report, but losses were
capped as a steep drop in. . .
European shares fell on Thursday,
with disappointing results weighing on banking stocks, while
heavyweight mining firms tracked a pullback in commodity prices
on growing. . .
Silver plunged 7 percent on
Thursday, heading for its biggest weekly loss since 1983 and
dragging gold 2 percent lower, as panic selling. . .
Sliding commodity prices thumped
energy stocks and miners while Lloyds Banking Group led
financials down, pulling Britain's top share index lower on
Thursday, with. . .
World Markets (Spot Prices)
|JSE Top 40||17:00||28324.46||-251.81||-0.88%|
|JSE Indust 25||17:00||27163.03||-77.05||-0.28%|
|Rand / Dollar||19:59||6.7163||0.0363||0.54%|
|Rand / Pound||19:55||11.0309||0.0497||0.45%|
|Rand / Euro||19:55||9.8086||-0.0929||-0.94%|
|Rand / NZD||19:58||5.2901||0.0153||0.29%|
|Rand / AUD||19:55||7.1595||-0.0075||-0.10%|
|Yen / Dollar||19:58||80.1900||-0.4600||-0.57%|
|Euro / Dollar||19:55||0.6867||0.0127||1.88%|
|Dollar / Euro||19:59||1.4559||-0.0263||-1.77%|
|Pound / Dollar||19:55||0.6087||0.0028||0.46%|
Click here for the Sharenet Spot Price page
The JSE Today
|Index Name||RP||Move||% Move|
|Financial & Ind. 30||30,293.35||-144.43||-0.47%|
|Oil & Gas ||26,870.22||-524.57||-1.91%|
|Oil & Gas Producers ||14,447.62||-282.05||-1.91%|
|Basic Materials ||30,056.78||-358.79||-1.18%|
|Forestry & Paper ||14,304.88||171.44||1.21%|
|Industrial Metals ||28,865.05||-99.16||-0.34%|
|General Industrials ||75,586.52||-434.62||-0.57%|
|Consumer Goods ||26,804.36||-100.84||-0.37%|
|Automobiles & Parts ||3,192.89||33.97||1.08%|
|Health Care ||31,800.15||-89.25||-0.28%|
|Food Producers ||47,363.11||-529.99||-1.11%|
|Index Name||RP||Move||% Move|
|Personal Goods ||416.48||-1.80||-0.43%|
|Consumer Services ||52,789.82||-398.15||-0.75%|
|General Retailers ||41,338.65||-272.87||-0.66%|
|Travel & Leisure ||3,724.99||-17.57||-0.47%|
|Support Services ||2,370.26||6.74||0.29%|
|Non-life Insurance ||31,567.47||43.65||0.14%|
|Life Insurance ||15,891.22||-57.61||-0.36%|
|General Financial ||2,224.39||-22.53||-1.00%|
|SHARIAH TOP40 ||3,154.85||-33||-1.04%|
|FTSE/JSE SHARIAH ALL||3,217.00||-33||-1.01%|
|FTSE JSE Fledgling ||4,505.15||-16||-0.36%|
|FTSE/JSE Alt X ||1,016.68||-5||-0.46%|
|SA LISTED PROPERTY ||370.22||-1.39%|
|CAPPED PROPERTY ||310.21||-1.13%|
|FTSE/JSE RAFI 40||6,596.71||-59||-0.88%|
|Capped Top 40||14,771.05||-127||-0.86%|
|Capped All Share||15,901.14||-136||-0.85%|
Click here for the Sharenet Index Summary page
Latest Consensus Changes**
|BTI||BRITISH AM. TOBACCO PLC||BUY||28 Apr|
|EMI||EMIRA PROPERTY FUND||HOLD||21 Apr|
|FSR||FIRSTRAND LIMITED||BUY||21 Apr|
|NED||NEDBANK GROUP LTD||SELL||21 Apr|
|SBK||STANDARD BANK GROUP LIMIT...||SELL||21 Apr||
|Expected||Company Name||Fin. Date|
|06 May 2011||FINBOND||February 2011 (Final)|
|06 May 2011||METMAR||February 2011 (Final)|
|06 May 2011||MIRANDA||February 2011 (Interim)|
|09 May 2011||ASTRAPAK||February 2011 (Final)|
|09 May 2011||ASTRAPAKP||February 2011 (Final)|
|ALTRON PP||11-05-04||11-06-24||11-07-04||R 1.0800|
|WEZ||Wesizwe Platinum Ltd||05/05/2011||Confirmed|
Stock Exchange News Service
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