The first time I walked into my mother-in-law’s house, I noticed a large number of conkers dotted around. That’s on the inside.
It struck me as odd. But knowing my mother-in-law, not entirely out of character. As it turns out, she has a fear of spiders, and the conkers are her first line of defence. Despite no scientific evidence supporting it – a group of Cornish schoolchildren actually won a Royal Society of Chemistry award in 2010 for proving spiders were entirely unfazed by conkers – the old wives’ tale lives on.
Despite the significant data and science that revolve around them, investment markets have plenty of folklore of their own. One of the most well-known is the adage of “sell in May and go away”, coming back in September (specifically St Leger Day – the day of the Doncaster horse race). This is supposedly based on historical observations that equity returns have, on average, been stronger between November and April than between May and October. Various studies have delved into this, and while S&P 500 returns have historically been lower in this period versus November to April, selling in May has often seen investors forego gains. Take last year, selling in May would have been a painful experience for those who were sitting on their cash watching US equities rally over 23% in sterling. This was of course through a period of great uncertainty over tariffs in the US, and markets were recovering from an April shock.
Seasonality and the "sell in May" hypothesis
Long‑term data does show a seasonal return pattern in equity markets, both in the US and internationally. However, the practical application of this observation is considerably less straightforward. A detailed review by Bank of America covering close to a century of market data found no compelling evidence that selling equities in May reliably protected investors from significant drawdowns. In many instances, following such a strategy would have resulted in foregone gains rather than reduced risk.
Moreover, even during the historically weaker May‑to‑mid-September period, equity markets have delivered positive returns most years. Recent market cycles have included several periods when summer returns were meaningful, underscoring the difficulty of relying on calendar‑based strategies. In fact, nine of the last 10 have been positive. And 2015, the odd one out, delivered losses of just 5.4%. If you had done nothing you would have been up 3.7% for the year. In our 10-year sample, you would have given up an average of roughly 8% by following the St Leger method.
You also need to consider transaction costs, taxes, and the risk of delayed re‑entry. One of the greatest risks you take when stepping out of markets is missing out on recoveries. Would you have had the discipline to buy back on St Leger Day if markets were down? By the time confidence improves and uncertainty recedes, a significant portion of the recovery has often already happened. These all provide headwinds to the potential benefits of seasonal strategies, particularly for long‑term investors.
Portfolio construction over prediction
It is a well-worn investment truth that it is about time in the market, not timing the market. This won’t be new to most, but it’s important to provide the occasional timely reminder.
Market volatility is not a new phenomenon, and events impacting markets on a grand scale seem to be increasingly frequent. It can be unsettling, particularly during periods of elevated economic or geopolitical uncertainty. While such episodes often prompt investors to question whether reducing exposure or moving temporarily to cash may be prudent, whether seasonal or not, long‑term evidence suggests that attempting to time markets has been detrimental to investor outcomes. Market timing requires not only identifying when to reduce exposure, but also when to reinvest. Behavioural factors further complicate decision‑making. Studies consistently show that investors, on average, tend to buy and sell at unfavourable points in the cycle, often driven by short‑term market movements rather than long‑term fundamentals.
The principal risk for long‑term investors hasn’t been market volatility itself, but being underinvested at critical moments.
Well‑constructed multi‑asset portfolios are designed to balance risk and return across market cycles, recognising that volatility is a normal feature of investing rather than an anomaly to be avoided. Rather than attempting to predict short‑term market movements or relying on seasonal patterns, our approach emphasises diversification, asset allocation and discipline to take advantage of short-term volatility, not be influenced by it.
While the temptation to reduce exposure during periods of uncertainty is understandable, long‑term evidence suggests that remaining invested, within a diversified and appropriately structured portfolio, has been far more effective than attempting to time markets or follow calendar‑based strategies.
But that’s not as catchy as a rhyme that compels you to do something – anything – rather than be patient. Like spider-repelling conkers, flashy yarns often stick in our minds faster than hard, boring facts do.
