Back a share winner

By DAILY MAIL REPORTER
Updated:

 

Saturday's St Leger steeplechase promises to be one of the most hotly contested for years. But for stock market punters, as well as those chancing their arm in the betting ring, the race day is also significant.

According to the old adage, investors are meant to 'sell in May, go away, buy again on St Leger day'.

Justin Urquhart Stewart, of Barclays Stockbrokers, says: 'It used to be the case that people, particularly fund managers, went away for the whole summer, so that's where the saying comes from.

'And it's still true that the volume of shares swopping hands in summer is lower than at other times of the year. But now, if you sell in May and go away, you can miss out.'

In some years, though, the saying can come true. So far this year the two main British stock market indices hit their highest points in the summer and their lowest points in the winter.

However, anyone with a unit trust tracking the FTSE All-Share or 100 index who bought on May 4 is now worse off than they were four months ago.

Figures supplied by the London Stock Exchange show that this year, the FTSE 100 index of leading stocks hit its highest point on July 6, when it closed at 6620.6 - a record for the index which was formulated more than 15 years ago. Up until now, the FTSE's low point this year was 5770.2, on February 10.

If you'd been in a FTSE 100 tracker in the early part of the year and sold out on the first trading day of May - May 4 - you would have cashed in when the index was at 6533.1. If you bought back now, the index is closer to 6,309.5.

So as long as the FTSE is still below 6533.1 by St Leger day, you'd have benefited by taking your money out in May and buying back in September.

However, you would have done even better if you'd held on until July 6 - the market peak - before selling out, rather than getting out in May.

According to figures prepared by Virgin Direct, the performance of the FTSE All-Share index has been stronger in the six months from September to March than in the other six months of the year in seven out of the past ten years.

Tony Wood, marketing director of Virgin Direct, says: 'It is still true that the market tends to drift during the summer months. In autumn, activity picks up strongly and, more often than not, it is the winter months that offer the best returns.'

But this year might well be a bit of an exception. Mark Dampier, investment director of Hargreaves Lansdown, says: 'I think if you go with the old adage and buy back on St Leger day, this year it might well be a mistake. 'It's the millennium effect. Technology concerns about the year 2000 mean companies are going to hoard rather than spend. I think some brokers and fund managers might just shut their books and stop trading from October. 'This means you will get a very illiquid market with low trading volumes and exaggerated price move-ments. I think the market is likely to go down before the new year, so you might be better off waiting until later before buying back.'

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