Why Selling in May and Going Away Was a Mistake

For fans of horse racing, there was only one place to be this weekend: Doncaster. It was the annual running of the St Ledger, a classic race given extra spice by the prospect of seeing Derby winner Camelot repeat the feat of the great Nijinsky and win flat racing's Triple Crown. For investors of a certain hue, St Ledger day also completes the phrase that starts 'Sell In May.' It's the day when we're supposed to come back and re-engage with a stock market that's no longer affected by the vagaries of low summer volumes.

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So this year what happened? Since May 1, the FTSE has risen just over 100 points, most of that in the last week providing gains of 1.75 percent In the U.S the S&P 500 is up over 60 points or 4.45 percent but the standout has been equities in the poor afflicted euro zone. In the same period the Euro Stoxx 50 has risen over 200 points, a near 11 percent return.

Clearly selling was not the best decision, but as Seven's Justin Urquhart Stewart points out, it's worse than that. Because in the May - September period ''not only would you have lost the income, but also incurred the costs of selling and buying back and suffered the further losses of the bid–offer spreads. All in all, a complete waste of time, money and worry.''

So what next?

Equities and risk have been supported by the efforts of the world's central banks, led by the European Central Bankand Federal Reserve. In fact U.S. stocks are in a juicy spot. The Dow, S&P 500, NASDAQ Composite and Russell 2000 are all trading at multi year highs. These are markets that have been favored by many analysts over the course of the year... but is it a green light through the rest of September?

Marc Faberbelieves it may be time to lighten equity exposure now to buy at lower prices in the next six months. A view that Lloyds' Charlie Diebel leans to: "after a long run of positive news in terms of managing tail risk in Europe, the risk is growing that a disappointment trade could set in temporarily." Diebel talks about Spain maybe not asking for ; it wouldn't mean a long term risk-off phase but perhaps the risk reward is more to risk off in the short term.

So it's another judgment call, stick or twist but sometimes things can look too good. Camelot was the 2/5 odds on favorite to do something no horse had done since 1970. It lost by a length.