Well, this time around, this adage is likely to get far more attention than it deserves because of the miserable performance of the equity markets across the globe.
Markets are getting sold on every decent bounce. Furthermore, factors such as subdued Q4 corporate earnings, rising inflation, hawkish central banks, the resurgence of Covid cases in China, and high commodity prices are adding fuel to the fire.
So, the million-dollar question now is: Should you follow the adage in 2022? To get a logical answer, we should look back into history and check the performance of markets in the month of May.
Before moving on to the data-crunching part, let us first understand from where this ‘Sell in May and go away’ adage is said to have originated?
Interestingly, this adage does not have its roots linked to Wall Street, but rather it has its origins in London’s financial district. The original saying, ‘Sell in May and go away, come back on St. Leger’s Day” refers to a horse race.
Yes, you have heard it right! The adage has its origins in a renowned horse race!
The St. Leger Stakes is one of England’s paramount Horse race and is run in late September. London traders would sell their shares, enjoy their summer, and return to the market after the St. Leger race.
The idea is based on seasonality, and with this strategy, traders are only invested in the stock market for about seven months in a year (October through April).
Now, that we know the history of the adage, let’s move on to data crunching and dig deeper.
Nifty 50 Performance in May
From the above table, we can see that out of 20 years, Nifty50’s performance has been positive for the month of May 11 times, so the data is skewed a little bit in favour of the bulls.
However, if we calculate the average return for the month of May, it is around 1.01 per cent gain. Hence, from this data, it is clear that there is not much evidence to corroborate the advice that you should ‘Sell in May and Go away.’
On the contrary, if you check the numbers since 2013, we see that Nifty 50 has delivered negative return only once between 2013 and 2021, that too in the year 2020.
It is clear that having a bullish bias would have helped the investors rather than selling and going away.
Now, let’s look at the performance of Bank Nifty for the month of May from 2006 to 2021.
The average gain delivered by Bank Nifty is about 3.24 per cent in the month of May since 2006, with maximum gain seen in the year 2009 and the worst performance in 2020.
More so, a similar trend is seen in Bank Nifty as well, as the index has given negative returns only once (in 2020) between 2014 and 2021.
So, the data above clearly reflects that ‘Sell in May and go away’ might have proved to be a fruitful strategy in some cases, but not all the time.
Hence, it is better not to rely solely on an adage based on a horse race and talk to your investment advisor about creating long-term investing strategies that will help you grow your money without having to rely on outside noise.