Ten stock market adages put to the test
Stock market adages such as "Sell in May and go away, ..." are widespread in the world of equity markets and offer investors supposed guidance. But how practical are these adages in reality? Here are ten well-known stock market adages, their origins, and their applicability.
Stock Market Adage No. 1: Sell in May and go away, but remember to come back in September
This adage refers to the historical observation that summer months are often weaker on the stock markets than winter months. Investors are advised to sell their shares in May and only re-enter the market in September. Statistically, there are years when this strategy works, but there are also counterexamples. Additionally, in recent years, July has often been a strong month for the stock market.
Conclusion: Investors who sell their positions in May risk missing out on potential gains.
Stock Market Adage No. 2: The trend is your friend
A stock market rule that originates, among other things, from technical analysis. Investors should follow the prevailing trend rather than act against it. It is important to distinguish between megatrends and more short-term trends. Megatrends can provide steady growth over several years. Examples include decarbonisation or healthy longevity. Such megatrends can be played through thematic funds. Short-term trends are harder to anticipate, especially regarding the timing of entry and exit.
Conclusion: Trends can be helpful, but they can also reverse. A thorough analysis is essential.
Stock Market Adage No. 3: Buy the rumour, sell the fact
A strategy based on the observation that stock prices often rise in anticipation of news, without knowing the specific details or figures. Once the facts are on the table, prices often fall – even if the news is good. Investors should react to rumours by buying shares and sell them before the official news is released.
Conclusion: Rumours can be unreliable and lead to poor investments.
Stock Market Adage No. 4: Don’t try to catch a falling knife
This adage warns against buying shares whose prices are rapidly falling. Indeed, caution is warranted when stock prices drop sharply, as it could be the beginning of a severe correction.
Conclusion: Investors should wait to buy until the selling pressure subsides. However, it is difficult to identify the bottom.
Stock Market Adage No. 5: Buy on bad news, sell on good news
Those who buy securities on bad news and sell on good news are supposedly smarter than the overall market. This contrarian approach can work. However, knowing when a stock has reached its lowest or highest valuation point is very difficult to anticipate. Here, stock market adages No. 2 and 4 may caution against such actions.
Conclusion: For private investors, it may be more sensible to invest regularly over time.
Stock Market Adage No. 6: Don’t put all your eggs in one basket
This adage focuses on diversification. It means that investors should spread their capital across different asset classes, sectors, and regions to minimise risk. Diversification, for example through Exchange Traded Funds (ETFs), is a proven strategy to spread risks and achieve long-term value appreciation. However, it is not entirely risk-free.
Conclusion: Professional financial advice can help tailor a diversified investment strategy to individual risk tolerance.
Stock Market Adage No. 7: Markets can remain irrational longer than you can remain solvent
This insight is attributed to the famous British economist John Maynard Keynes. It suggests that markets can behave irrationally longer than investors can remain solvent. Keynes based his investment decisions primarily on rational, macroeconomic data and reinforced his strategy with high leverage. However, the plan did not work out, and Keynes narrowly avoided personal bankruptcy. He then followed the path of a so-called value investor (see stock market adage No. 8).
Conclusion: Instead of basing an investment strategy solely on market forecasts, it is advisable to implement a solid risk management strategy.
Stock Market Adage No. 8: Price is what you pay, value is what you get
This adage is usually associated with the American investor Warren Buffett. It means that the price of a share does not necessarily represent the company's value. Buffett typically buys when quality companies, so-called value stocks, are cheaply valued.
Conclusion: A thorough fundamental analysis is necessary to recognise the true value of a stock.
Stock Market Adage No. 9: Shifting back and forth leaves you with empty pockets
Stock market veteran André Kostolany phrased it this way. It means that constantly swapping securities in the hope of catching the right buying or selling moment can be costly.
Conclusion: Holding stocks for a longer period and not chasing every market trend can pay off over time – even if markets occasionally crash.
Stock Market Adage No. 10: Buy shares and take sleeping pills
Turbulence in the stock markets can make investors nervous and lead to emotional actions. Therefore, this adage recommends buying shares and then "going to sleep," meaning not paying attention to price movements.
Conclusion: A long-term investment strategy is generally sensible, but one should regularly review and adjust their investments and strategy if necessary.
Not the Ultimate Wisdom
Stock market adages can provide useful hints but can also be misleading. Markets are complex and driven by many factors. Instead of relying on stock market adages, investors should consider developing an individual investment strategy with the support of professional financial advice, tailored to their personal risk tolerance, risk appetite, and life goals.
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Last updated: March 2025
