The old saying 'Sell in May and go away' looks to have come true again with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) looking like it will close the month of May down nearly 5%.
There were few places to hide. The banks were all sold off over the month, with the majors all down more than the index. Commonwealth Bank (ASX: CBA) held up the best, losing 8% while Westpac (ASX: WBC), arguably the most expensive of the 'big 4', fell the most, down nearly 16%.
The mining services sector also had a shocking month with many mining service firms issuing earnings downgrades, which in turn led to significant share price falls. Two victims included UGL (ASX: UGL), which dropped 29%, and Transfield Services (ASX: TSE), which fell a whopping 41%.
Even the defensive blue chips like Woolworths (ASX: WOW) and AGL (AGK) weren't spared, with both companies suffering a 9% drop in their share prices.
Perhaps surprisingly, BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) were two companies that outperformed the index over May. Rio's shares lost just 1%, while BHP bucked the trend and gained nearly 7%.
Foolish takeaway
While 'sell in May' is a catchy saying, Foolish investors know better. Trying to time the market is a pursuit that is unlikely to be profitable in the long run. Markets will rise and fall in the short term but in the long run they have a canny habit of going up. So selling and trying to time your re-entry before the market bounces back in the hope of gaining a few percentage points is unlikely to be a winning strategy in the long run.
Rather than worrying about timing the market, investors are better served spending their time valuing businesses. This process can help investors avoid owning overpriced stocks, which fall back to earth when the market eventually wakes up to the fact.
On the second part of our little ditty – 'going away' – is not for our Foolish selves either. It's exactly when markets get the jitters and volatility increases that we get excited. This is when some of the best opportunities can arise.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
