Among stock market adages, one in particular sticks in this author’s mind: ‘successful investing is anticipating the anticipations of others’.

Attributed to the economist John Maynard Keynes, it suggests the way to make money in stocks is to try to guess what other people think is valuable rather than what you yourself think, in the same way as a judge in a beauty contest might try to guess which contestant their peers are likely to find the most attractive rather than follow their own instinct.

Keynes began his investing career using a ‘top-down’ approach, meaning he allocated his money to stocks, bonds and cash according to how the economy was doing, but he evolved into a ‘bottom-up’ investor, picking stocks which he believed were trading at a discount to their ‘intrinsic value’, a term he himself coined.

According to a study by David Chambers, Elroy Dimson and Justin Foo published in the Journal of Financial and Quantitative Analysis, Keynes’ top-down strategy produced ‘disappointing returns with no evidence of any market-timing ability’, but when he switched to bottom-up stock-picking he was much more successful.

Yet even he recognised the significance of paying attention to ‘the herd’ and not fighting the trend, so should we simply fall in line and continue to funnel money into the market as it hits new high after new high?

It’s a dilemma which brings us to another adage, this one as old as time itself: ‘sell in May and go away, don’t come back till St Ledger’s Day’.

The adage is based on historical data which suggests the best six months of the year for investment returns are from November to April.

However, while May to October may not produce the same level of returns, the evidence indicates that selling up and buying back into the market six months later isn’t a great strategy.

Fund management firm Fidelity calculates that since 1990 the S&P 500 index has gained 2% on average between May and October, which isn’t as good as the average 7% gain from November to April but is still positive on balance.

Moreover, investors could have enhanced this return by rotating from cyclical sectors – which tend to do well between November and April – into defensive sectors, which perform better over summer and autumn.

Alternatively, suggests the firm, investors could consider a ‘sell in May and stay’ approach, taking profits in stocks they don’t want to be in for the long haul and releasing cash, while sticking with a long-term strategy for the rest of their portfolio.

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