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Pick a month: making money in the markets all comes down to timing |
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Investors looking for silver linings to cloudy markets might care to take note of a new report that backs up the theory that you should “sell in May and go away”. Taking a long summer holiday is the best way to avoid the worst downsides of a bear market, says Heydon Traub, managing director of global asset allocation at State Street Global Advisors.
Traub says November to April is the good period and May to October the bad. His research shows that historically nearly all stock market gains have happened in the good period. In the bad period they have been close to zero.
This can partly be explained by the timing of bonus payments and the end of tax years for mutual funds. However, according to Keppler Asset Management, the average return for the US stock market between 1969 to 2001 was 7.5% in the good period compared with 1.2% in the bad.
No guarantees
And this is not confined to the US. The MSCI World Index over the same time shows good-period returns of 8.4% against -0.4% in the bad periods. The pattern is repeated across all markets where MSCI has indices going back to 1969.
Is this pure data-mining – finding data patterns that serve to explain the past? Whatever, Traub falls shy of telling investors to sell up as we enter the bad period. “There is no guarantee that this pattern will persist,” he writes, unhelpfully. However, he does add that this might not be the best time to buy, and if you’re thinking of selling up anyway, past performance would suggest now is as good a time as any.
As Traub puts it: “Based on history, don’t expect big stock gains over the next five months.”
