There is no foolproof betting system to win on the horses. There is no legal way to beat the house at Las Vegas. But according to a widely respected investment website, used by tens of thousands of small investors, there is a simple way to beat the stock market. Here’s how: you put a lump sum into shares at the beginning of November, then you sell it at the end of April. And that’s it.
Can it really be that simple? According to Interactive Investor, the firm behind this claim, it really is.
It says that starting with £100 in 1995, someone who had invested in the market continuously for the past 20 years would have seen their money grow by 100% to £200 (excluding dividends). However, if they had invested only between 1 November and 30 April every year, then that £100 would be worth significantly more at £316 – an increase of 216%. Conversely, if they had chosen only to invest over the summer they would have lost: their original £100 would be worth just £69.
Over 10 years it holds true, too. It suggests that the message put out for years by fund management groups – to “drip-feed” your money into the market month by month, to gain from “pound cost averaging” – is simply wrong.
“The evidence is quite compelling,” says Rebecca O’Keeffe, head of investment at Interactive Investor. “Even if you don’t buy in to the entire strategy of being out of the market for six months, you may be better off increasing your exposure to higher-risk stocks over the winter months and investing in more defensive stocks over the summer.”
In some ways this analysis is the equal and opposite of that decades-old stock market adage, “sell in May and go away”. London stockbrokers would sell their portfolios ahead of their long summer holidays in the south of France, then buy on their return. Markets would fall when portfolios were liquidated, then rise again in autumn.
In a world of computerised high-frequency trading, when billions change hands in seconds, it all sounds absurdly simplistic. The research covers 20 years, but that’s an unusually short period for stock market history. Excluding the summer months since 1995 means that investors avoided the two major downturns: the dotcom bubble, which burst in March 2000 and sent shares plummeting, and the more recent global financial crisis which wrought heavy damage on stock markets in the summer of 2008.
But the stock market history books do show a weirdly high number of crashes in October. The most famous, the Wall Street crash of 1929, started on 24 October, while our own 1987 “Black Monday” was on 19 October.
Extraordinarily, seven out of the 10 largest percentage falls in the history of the FTSE 100 have all occurred during an October (and, gulp, we still have 14 days left).
Why is this? I’m not convinced it has much to do with the seasonal Isa flows, which are insignificant compared to global hot money movements. I have every respect for Interactive Investors’ research. But what I do know is that if anyone promises you a foolproof way to make easy money, in general they are nearly always wrong. Unless, that is, they told you to buy London property. But one day, even that gravity-defier must join tulips and the dotcoms in the history of financial crashes.
• Is this the cheapest-ever air ticket? I’m toying with an extended holiday to the Far East in February. Air China will fly me from London to Beijing for a few days, then I fly to Bangkok. I’ll overland to Kuala Lumpur, then fly back with Air China to London. The price for all 24,000 km-worth of flights? Just £347, of which £300 is tax. The economics of modern air travel is completely befuddling – and that’s before you even begin to assess its environmental impact ...
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