Sell in May and go away. Is the old saying still relevant?
Sell in May and go away. Is the old saying still relevant?
Introduction.
"Sell in May and go away" is not just a saying, it's a piece of financial history. Coined by London traders, it suggests that equity returns from November to April outpace those from May to October. This enduring seasonal adage has been a part of financial markets for centuries. Read on to look into its history, evidence of its validity in UK markets, and its relevance today.
What is the origin of the saying "Sell in May and go away"?
The full original phrase was reportedly "Sell in May and go away, come back on St Leger's Day", referring to the St Leger Stakes horse race held annually in Doncaster in September, when traders would return after the summer lull. It reflects 18th-century British market behaviour when London's financial community thinned out during the warmer months.
Does the phrase hold any weight historically?
As with most things, a saying doesn't come into everyday parlance without reason. Interestingly, there have been numerous studies and academic research that shows a clear long-term pattern in UK equities:
Bouman and Jacobsen (2002) examined 37 countries and found that November to April returns exceeded May to October returns in 36 of them, with the effect traceable in the UK as far back as 1694.
Maberly and Pierce (2004) extended the analysis to 2003 and, despite excluding crash-affected months, confirmed a significant seasonal differential in UK data.
Faber's backtesting since 1950 shows an average outperformance of roughly 10 percentage points for November to April versus May to October.
Does the phrase hold any weight today?
The world has moved on since then, and more recent studies have painted a mixed picture of the phrase's validity.
Fidelity analysed the FTSE All-Share Index from 1 May to 15 September over the past 38 years and found negative total returns on 14 occasions but positive on 24, illustrating that the summer slump was inconsistent.
Last year saw the FTSE All-Share rise by 1.7 per cent from May to September, defying the adage in a volatile market environment.
Seasonax charts indicate the FTSE 100 often does decline after May, before recovering towards year-end, potentially influenced by UK holiday patterns and fiscal calendars.
What factors are affecting the saying's validity today?
In a significantly more dynamic world, several developments have eroded the reliability of "Sell in May and go away":
The increase in globalisation and electronic trading.
Rapid, 24-hour markets reduce seasonal illiquidity. Retail and algorithmic trading operate year-round, smoothing out the summer gaps. In essence, money never sleeps.
The effect of macroeconomic volatility.
Geopolitical events, trade wars and policy shifts, such as US-China tariff disputes or UK fiscal changes, often overwhelm seasonal trends. For instance, recent global tariff uncertainties and bond-market stresses have driven market moves in ways unrelated to the calendar.
The changing of investor behaviour.
The incredible rise of passive investing has altered the market microstructure, making simple 'seasonality trades' less profitable.
Is the saying "sell in May and go away" outdated?
While the underlying seasonality persists to a degree statistically, its practical edge for investors has diminished:
A 2023 Manulife study showed buy-and-hold outperformed "Sell in May" over multiple decades, even when adjusting for sector and index differences.
Fidelity concludes that, though the strategy still "works" some years, it is "hit-and-miss" and may not serve investors' interests when timing errors and transaction costs are factored in.
MoneyWeek notes that a £100 investment in the FTSE All-Share in 1986 would grow to £2,014 by 2024 under buy-and-hold versus £1,391 with seasonal selling - a material divergence over time.
Further considerations.
While "Sell in May and go away" remains a historically intriguing idea, several nuances limit its practical appeal. First, reduced summer trading volumes often amplify price swings as fewer participants leave markets more prone to overreaction.
Equally, dividend timing in the UK works against the strategy. Many companies distribute a large share of their dividends in late summer and early autumn. By exiting positions in May, investors forgo this income, which can materially offset any capital-gain advantage from avoiding a modest seasonal lull.
Furthermore, the combined drag of frictional costs and taxation further narrows the edge. Commissions, fees, stamp duty, and price spread typically consume a percentage of a portfolio's value in a round-trip trade. Plus, there may be capital gains tax payable on the realised profits, which trims another proportion for many investors. After these deductions, risk, and capital spending, the net benefit is likely negligible.
Finally, one must consider market evolution and alternatives. Global electronic trading and passive index vehicles now operate year-round, smoothing seasonal illiquidity and compressing any tradable edge.
Conclusion.
"Sell in May and go away" remains a fascinating example of how the calendar can affect equity markets. However, modern market structures, globalisation, persistent volatility and the long-term outperformance of continuous investing suggest that most informed investors could be better served by a disciplined, buy-and-hold approach, perhaps complemented by tactical shifts when valuations or macro conditions warrant, rather than by adhering to outdated seasonal rules.
In summary, time in the market is better than timing the market.
What’s next?
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Don't forget, this article offers general financial information and should not be taken as personal advice. Remember that investments and pensions can go up and down in value, so you could get back less than you put in. Tax rules can change and will depend on your individual circumstances.