There is an old proverb on the stock markets which is “sell in May and go away” suggesting that investors are better off selling up in May and coming back in November. The idea behind this proverb is that May to October tend to be relatively quiet periods for the stock market compared to November to April. A number of research reports over the years have highlighted this phenomenon as something of a regular occurrence with an average difference of around 10% on stock market performance over the two different periods. However, are we really bothered about the overall stock market if we are looking to trade individual stocks?
Buying opportunities
Just because people go on holiday, the summertime brings a different attitude and markets do seem a little bit calmer, does not mean there are not buying opportunities. Can you imagine the number of investors waiting for others to sell in May and go away so they can pick up cheap stock which has perhaps been oversold?
At the end of the day, whether it is a quiet period for the stock market or not, a company which is trading well will see this reflected in their share price in the medium term. There may be short-term fluctuations when sellers outweigh buyers and the shares turn down but if the underlying fundamentals stack up then it won’t take long for them to bounce back.
Volatile times ahead
If we do take as gospel the research which shows underperformance during May and October compared to November and April are we really saying that markets will react differently to for example more gaffes by Donald Trump? We may see some traders moving away from the market, in fact some fund managers may well take a step back but professional traders are always alert to what the future may hold and very few will take any notice of the research quoted above.
The Internet has also changed the way we invest in stock markets because quite literally you can buy or sell at the touch of a button wherever you are in the world. Indeed there is Skype and other face-to-face communication channels which are to all intents and purposes as good as being stuck in your office and talking to a colleague on the telephone who is in the same building. We also need to appreciate that information/rumours can be circulated on the Internet in a split second and traders need to be aware and ready to react.
Changing Times
It would be foolish to suggest there has not been a difference in performance between the two periods mentioned above, at least in years gone by. What will be interesting is to see whether this trend continues into the future because the stock markets we see today trade very differently to those of 20, 30 and 50 years ago. Information is now readily to hand wherever you are in the world via the Internet, you can buy and sell shares at the touch of a button so to all intents and purposes, are you really out of the game when you’re on holiday?