Editor’s Note

As the S&P/ASX 200 heads towards 6,000 inthese early days of May, we are reminded of the old saying “Sell in May and GoAway”. Looking at the Index performance over the past few years, it is not hardto see merit in this advice. There were marked sell-offs in the Index in May in2012, 2013, 2015 and 2017. See chart below.

There are many reasons behind this seasonalperiod of weakness in the ASX, including (I) Northern hemisphere investorsruling off their book for their summer holiday period, (II) investors lookingto start the new financial year with a ‘cleaner’ portfolio, (III) investorsselling underperforming positions at losses to offset taxable income and, (IV)investors selling outperforming positions to lock in financial year profits.

The impact of the above can havea particularly pronounced effect on small cap stocks which, by their verynature, have much lower levels of liquidity. In simple terms, share prices canfall dramatically on low volumes when ultimately the business fundamentalshaven’t changed. Some investors, however, may see this period to adopt acontrarian stance and buy when there is “blood in the streets”.