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Sell in May and Go Away?

Buy and sellOn 5pm on the last trading day for the month of May, the Straits Times Index (SGX: ^STI) was at 3,311, staring at a 2.7% drop from 02 May 2013’s closing level of 3,402.

The STI actually did pretty well in the middle of May, hitting 52-week highs along the way, but things turned ugly after the big 7% fall that Japan’s Nikkei Index experienced last Thursday.

And this time, most of the stock market troubles could perhaps be traced to the American Federal Reserve’s possible slow-down of their on-going quantitative easing (QE) programme as well as the questioning of the effectiveness of Japan’s own version of QE that started in April.

But before we digress into any long-winded discussions on stock-market movements, let us count the casualties.

Real Estate Investment Trusts (REITs) as a group were one of the worst sufferers. The FTSE Straits Times Real Estate Investment Trusts Index (SGX: FSTAS8670), made up of locally-listed REITs, shed almost 9% of its value since the start of May. There isn’t much space to hide for even the stalwarts such as Singapore’s oldest REIT, Capitamall Trust (SGX: C38U), which has fallen by 8%.

Within the STI, two-thirds of its components registered losses for May, with some big casualties such as telecommunications company Starhub (SGX: CC3), which dropped by more than 12% after analysts downgraded its shares.

When we take this all in, it would seem that the old stock market myth of “Sell in May and Go Away” is ringing true. The myth says that investors should dump their stocks in May, and then invest again from October to April.

But before you rush-out-to-cash-out your portfolio, this simple statistic might change your mind – ‘Sell in May and Go Away’ was effective in only 12 out of the last 25 years. It works no better than a coin flip. Call me weird, but as an investor, I’ll prefer to place my faith behind strategies that gives me better odds than a 50-50 tossup.

That’s not all. Investors in counters like MTQ Corporation (SGX: M05) who fell prey to the myth and sold before May would have missed out on a 20% gain!

The company, which provides engineering services to the oil & gas industry, had released its full year results on 6 May 2013 that saw it post a stunning 48% increase in annual profit to S$21.6m. In fact, prior to May 2013, the company had been posting three consecutive quarterly results with year-on-year quarterly-profit growth of no less than 50%.

Investors who had done the foolish (Note: small ‘f’) thing of selling the shares even with seemingly good underlying fundamentals would have missed out on the strong gains in May.

Of course, this might sound like cherry-picking-on-hindsight. But, the MTQ example serves as a reminder that it is the underlying business fundamentals that ultimately counts when it comes to discerning what’s important in investing in the stock market.

The next time someone offers you, Foolish reader, any archaic investing-advice like “It’s May! Let’s go away,” turn around and reply him/her with this pithy quote from American billionaire investor Warren Buffett that perhaps cuts to the very chase of it all:

I am not looking at quarterly earnings projections, am not looking at next year’s earnings, am not thinking about what day of the week it is. I don’t care what investment research from any place says, am not interested in price momentum, volume or anything. I am simply asking: What is the business worth?”

As a Foolish investor, let’s not forget that it’s the businesses that count, not the ticker alone.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.