Easter Miniseries: Trading (un)truths for Easter

Insights 15/04/2019
Tempo di lettura: 2 minuti

There is no shortage of old adages about the stock exchange. To mark the Easter holiday, we take a closer look at two old seasonal sayings.

The stock exchange continues to scare some people off – they think they don’t know enough, or are too nervous or too indecisive to give it a go. It’s here that this kind of simple, concise bits of advice come in handy – yet very few people believe them or abide by them. So are they right or wrong to do so?

Sell in May and go away!

Since Easter comes a little late this year, this old saying is now even more topical. According to the rule, you should sell on May 1 each year and buy back again on October 1. But why should there always be crashes during the summer months, or why should things actually go better during the remaining six months of the year?

Points in favor:

  • According to statistics, May is traditionally one of the worst months in the stock exchange year.
  • The dividend season has come to an end and profits are being drained off.
  • During times when people are on vacation, there is usually less happening in stock exchanges.
  • The summer months are also a time with little news, so bad news makes more of an impact.

Points against:

  • According to statistics, May is traditionally one of the worst months in the stock exchange year. Correct.
  • Various studies and long-term statistics show that the saying is useless as a rule for investment.
  • Error in logic: If there were actually a reliable stock exchange anomaly in May, then all investors would attempt to utilize this early on and the pattern would thus cancel itself out.
  • This sort of banal “bon mot” is in stark contrast to the complexity of the global equity market, which is influenced by countless different factors.

Don’t put all your eggs in one basket

This bit of advice is about diversification. You shouldn’t put all your money into one bit of equity; rather, aim at various different targets when investing. This method ensures optimized yields while minimizing the risk of a total loss. This piece of advice is therefore justified and accurate.

Summary

Most of the sayings associated with the stock exchange might be entertaining, but they are no more true than old country lore. It therefore wouldn’t be very smart to base your investment strategy on proverbs like this.