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Should I sell in May and go away?

Chris Dillow wrote a thought-provoking piece in his Investor’s Chronicle column during the summer of 2021. The bottom line is that “equity returns are seasonal, like it or not.”


He observed that seasonal investing, where one sells on May Day and buys back on Halloween, worked well during the previous year. You would have avoided a 2.5% loss over the May-October period ending October 2020 and got back in for a 26% gain from November to April 2021.


The longer-term figures show that since 1966 the All-Share has delivered an average total return of 7.9% per annum during the winter period v a loss of 0.6% during the summer months.


Chart showing the monthly returns on the All-Share Index since 1966. (Not sure what happened to January, but you get the picture!)


Dillow rightly points out that seasonal investing does not work every time - “in finance nothing is 100% successful – but often enough to make money over the long term.”


He posits several theories for this phenomenon, but I won’t go into that now. The question for me is, what to do about it, if anything?


I guess, if one just held an index tracking ETF, one could try and capture this by selling on 30th April and buying back on 31st October. There’s a certain appeal to spending the summer away from the markets and improving one’s golf swing...


While accepting the summer months might be more difficult, my approach is to a). focus on the longer term and b). continue to try and pick investments that will produce positive returns even if the market background is less than helpful. Dillow talks about the 1st May to 31st October 2020 period producing a 2.5% loss for the FTSE-All Share. The JIC Portfolio returned +14.4% over that period and to boot, I fitted in the Cotswolds Way and The Hebridean Way!


He also points out that the seasonal effect broke down recently. From 31st October 2019 to 30th April 2020, (the emergence of the pandemic) the All-Share lost 17.6%. The JIC Portfolio was up 2.0%, helped by good autumn and a very strong bounce-back in April.



Looking back to the inception of the JIC Portfolio in January 2012, the "seasonal" returns, updated to October 2022,  look like this:

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The first thing that stands out is that there does appear to be a seasonal effect, with the winter period averaging a return of +9.8% (median 11.5%) and the summer period +4.8% (median 3.9%).


Also, eight of the winter periods are ahead of the succeeding summer periods, with just two behind, 2018 and 2020.


What does this tell us about the immediate future? I think not much, although given the -8.1% drop over the summer to 31st October 2022, if I were a betting man, I would put my money on the current six months being much better. 


Jeremy Grantham of GMO gives cause for optimism. The following is from his January 2023 letter to shareholders:

"Now for timing. Some complicating factors seem quite likely to drag this bear market out. Let’s start with that irritating factor, the Presidential Cycle, which is so simple sounding that no one in the fee-charging business can afford to be associated with it. And that is presumably why it continues to work. The important fact here – see Exhibit 1 – is that for 7 months of the Presidential Cycle, from October 1st of the second year (this cycle, 2022) through April 30th of the third year (2023), the returns, since 1932, equal those of the remaining 41 months of the cycle! This has a less than one-in-a-million probability of occurring by chance, pretty remarkably, and it has been about as powerful in the last 45 years as the previous 45 years. We are now in this sweet spot, which once again is up nicely so far. The logic and nuances are spelt out in Appendix 1. Suffice it to say that this positive influence may help to support the market for a few more months."



I will continue to focus on holding the right mix of investments and trying to get the market to work for me rather than against me. By that, I mean buy on red days when, often on very low volume, stocks are marked down, and if I want to sell, do it on a blue day. In other words, do not get buffeted around by market gyrations.

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