It is that time of the year again when we are supposed to ditch our shares and wait for September to arrive before we step back into the stock market. Those are not my views but the message embedded in an old – a very old – stock market adage. According to the maxim, we should sell in May and go away and don’t come back until St. Leger day. The London sewers The well-trodden saying is peddled and practiced by many who probably have no idea about either the origin of the adage or its relevance. But they…
Those are not my views but the message embedded in an old – a very old – stock market adage. According to the maxim, we should sell in May and go away and don’t come back until St. Leger day.
The London sewers
The well-trodden saying is peddled and practiced by many who probably have no idea about either the origin of the adage or its relevance. But they are, nevertheless, happy to trot out the old proverb as an excuse to do something when staying invested could be the better option.
Here is a very quick history lesson about the catchy rhyme. Are you paying attention at the back?
The “Sell in May” adage dates back to old Victorian London when wealthy individuals would leave the city for more fragrant destinations due to the stench from the sewers.
I don’t know about you but my cursory examination of Singapore’s sewers would suggest that our waterworks are some of the finest in the world.
Whilst we are in history mode, there is an old Chinese story that dates back to the Song dynasty. At the time there was a farmer who wished every day that good luck would come his way. One day it did.
Run rabbit, run
One day whilst the farmer was working in the field, a rabbit ran head-first into a post and met an untimely end. The farmer bent down and picked up the rabbit thinking that if he could find a rabbit every day then he would never have to till the land again.
So he gave up farming and sat by the post every day waiting for the next rabbit to meet its fate. Days turned into weeks, and weeks turned into months without a single rabbit making an appearance. Eventually, he gave up and went back to hoeing his land.
Trying to time the market is not unlike the farmer who sat idly waiting for a rabbit to meet its maker. Since 1987, the market has risen around half the time between May and September. It has fallen the rest of the time.
The best year to have attempted the market-timing manoeuver would have been in 1998 when the Straits Times Index (SGX: ^STI) fell 662 points. The worst year to have tried the same manoeuver, though, would have been in 2009, when the benchmark index climbed 676 points.
A big fat zero
Guess what? The sum total of the two tactical manoeuvers would have resulted in a net gain of about zero – a big fat zero.
The simple truth is that since 1987, Singapore shares have appreciated almost four-fold. That equates to an annual increase of 5%. Add on another 3% for dividends, and the total return comes to 8%.
An 8% total return would mean that a lump sum of $10,000 invested in 1987 would be worth almost $80,000 today. What’s more, a regular monthly investment of $1,000 in a basket of Singapore shares since 1987 would now be worth over $1 million.
That strikes me as being a much better way of spending our time than tossing a coin in May to decide if markets are going to rise or fall during the summer months.
Legendary investor, Peter Lynch, once said: “There are substantial rewards for adopting a regular routine of investing and following it no matter what, and additional rewards for buying more shares when most investors are scared into selling.”
That sounds like the kind of advice Warren Buffett regularly offers to investors, too, namely to be fearful when the market is greedy and to be greedy when the market is fearful.
I don’t ever recall either of them advocating investors “Sell in May”. That might be why Lynch and Buffett are two of the most successful investors of our time.
This article first appeared in Take Stock Singapore.
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