Switching off in the summer months?

Have you ever heard the phrase “sell in May and go away”? This is a popular phrase in investment circles and implies that there is often a downturn in the stock market during the summer months. This seasonal behaviour is often given as a reason why you should seek to sell all of your holdings in May and then forget about things for the next few months.

When you return in the Autumn, it is to be expected that you will have avoided what otherwise would have been trading losses. Is there any sense to this advice? Almost inevitably, when people come to answer that question they will tend to look at very recent performance levels. If the advice looks to have held good the previous summer, then there are always some who will immediately assume that it is always certain to be correct. By the same token, one great summer might be taken as an indication that it is advice that is best ignored.

There has been some evidence over the years (based upon the Dow Jones Industrial Index) that does suggest that returns are considerably lower during the summer months. Is there any reason for this? Is there strong evidence to suggest why this should be so?

There may be a danger, of course, this has become what is known as a self-fulfilling prophecy. As more and more people withdraw from their holdings during these months of the year, it might be expected that share prices would necessarily fall. There will doubtless be much consideration of whether we see the same being replicated during the coming few months.

What you can certainly expect to see is further discussion of popular trends, phrases and thoughts. That’s what we’re here to bring you.