How to make sure your investors "don't sell in May and go away"

The trajectory of a company is what attracts investors. Yet investors also determine a company’s success. To both achieve their lofty ambitions, investors and companies must therefore walk down a two-way street for one another.

However, this mutually beneficial bond often disintegrates in May on an annual basis. Why? Due to the adage for investors to “sell in May and go away”. Posited as beneficial for investors, this guidance can cause significant headaches for CFOs who require consistent and growing funds.

In this blog we will therefore explore “sell in May and go away” from the perspective of financial leaders, answering the following questions for them: What is this advice all about? Is it still relevant? And what can they do to counter the risk it poses to their funds? Read on to find out all the answers.

What is “sell in May and go away”?

How to invest has inspired many debates and even the publication of various books. However, one bit of advice which is easy to remember is “sell in May and go away”. Beyond the fact that it rhymes, it is also memorable because it largely holds true year on year. So, what does it mean?

Based on historical data, stocks tend to perform better between November and April, before experiencing a downfall from May until October. “Sell in May and go away” therefore advises investors to rid themselves of stocks in May before they underperform.

Do modern investors “sell in May and go away”?

It should be noted that this guidance is entirely based on historical data to produce seasonal insights. This is important given the fact that strategies formed upon seasonality have largely fallen out favor since the decline of agricultural markets’ value.

Yet since 1990, the S&P 500 Index has on average only gained 2% between May and October, before gaining an approximate value of 7% from November to April. On the whole, “sell in May and go away” therefore makes a fairly convincing case. However, outliers do exist, with the trend proving fallible in 2020 when markets performed better after May.

Consequently, despite the apparent investing wisdom the adage has offered for over 30 years, the best way to invest is always by doing research into companies and considering external factors. From within businesses, CFOs therefore have a big role to play in taking positive actions and reporting on them clearly to secure the long-term commitment of investors.

What can CFOs do to retain their investors?

Proactive actions by CFOs, not the historic record of stocks, should always be what accomplished investors look to when making decisions. To make sure they have complete faith in companies all year round, CFOs must address growth, accuracy, reporting, regulations, ESG and crisis planning. Let’s find out how financial leaders can make sure that all these factors are desirable to investors:

• Growth initiatives
  
  ‍Over the last decade and a half, the economy has had to contend with a series of macroeconomic downfalls. Now investors are keen for CFOs and other strategic board members to turn their attention to growth.
  
  How a CFO goes about achieving this ambition will ultimately depend upon the nature of their business and their existing resources. Common options are mergers & acquisitions, exploring emerging markets, innovation, and digital evolution. Despite there being many options, selecting the right strategy is crucial, otherwise growth (the main draw for investors) might not be achieved.
  
  When selecting a growth strategy, CFOs should therefore ask themselves:
  ‍
• What risk might they encounter? For instance, could there be tax implications to consider due to their new initiatives ?
• Do they have the right resources along with advantageous PR in place to communicate the benefits of their new direction and ease any potential concerns?
• If they’re moving into a new market, what talent is available in their new geography, is the political situation stable, are there any cultural issues they should be mindful of etc.?
• Should they hire consultants for digital transformation if they are lacking inhouse digital expertise, and if so, might a digital leap in fact be counterintuitive?
  
  Plus, many more questions. Importantly, no matter how a CFO aims to drive growth, they must also look to propel their own financial operations. In other words, as an organization grows, so too must its finance function. If not, despite a CFO’s best intentions, it will be their department which ends up causing growth to drag. Fortunately, in our next point below, we share how they can speed up one of their most crucial financial processes without compromising on accuracy.

• Accurate and timely reporting
  
  Accurate, contemporary data should always be at the forefront of deciding whether to invest in a company or not. Whilst some companies might report upon metrics once a year or each quarter, this doesn’t deliver investors with the continual stream of insights they need to make informed investments.
  
  To keep up with corporate numbers in a way which will engender trust in investors, the modern world’s standard of “real-time” is what must be aimed for. Instinctively people might believe this requires a rushed, frantic approach. However, employing this attitude with financial data is never a good idea – it only increases the risk of errors being made and fraudulent transactions going unnoticed.
  
  Fortunately, thanks to technological advancements, due diligence is no longer synonymous with laborious checks which sap time. An example of a leading innovation which makes this possible is Aurum’s automated reconciliation software. No matter how high a company’s transactions grow, it can automatically import data from any number of sources and reconcile it in seconds. As a result, Aurum ensures that financial leaders are promptly notified of any exceptions and left with a separate collection of accurate, verified transactions to report upon.
  
  By automating a simple but lengthy procedure, CFOs can rest assured that they will meet the demands of regular reporting without sacrificing accuracy, neither of which could be guaranteed if data was handled manually.

• ESG
  
  Despite “sell in May and go away” being advice fuelled by financial incentive, for a growing number of investors, this is no longer the only factor which impacts their investing decisions. In fact, organizations’ environmental, social and governance (ESG) ratings are influencing a new way of investing.
  
  This has seen the emergence of ethical investment funds which are proving to be particularly popular within the younger demographic of Gen Z. With Gen Z totalling at roughly 2 billion people, for any CFO looking to attain and sustain investment for decades to come, they should therefore pour funds into sustainable, ethical initiatives.  
  
  Furthermore, as with any action which a business’ money influences, CFOs must ensure that they accurately report upon ESG-related activities so that investors can gain a true insight into their impact. Doing so might seem novel for CFOs who have traditionally focused on numbers relating ton revenue, profitability, and cash flow. However, for any financial leaders wanting to know how to report upon ESG-related activities and drive growth via them, in our first ever CFO Chapter we give a comprehensive insight into these topics and more related to ESG.

• Crisis planning
  
  Investing is ultimately a risky game. Whilst growth prospects might initially attract investors to a business, they are also always mindful of potential downturns too. This has only increased following the recent pandemic and growing evidence that unpredictable events due to global warming can significantly damage the bottom lines of businesses. Fortunately, although risk can never be completely removed from the practice of investing, financial leaders of companies can take precautions to minimize potential crises.
  
  A leading initiative includes working with data teams to simulate and analyse predicted or even unprecedented scenarios to gain a better understanding of how various situations might impact corporate numbers. Doing so allows CFOs to put in place strategies to protect funds should any of these events arise.
  
  In addition, CFOs should always seek to include others in discussions when creating crisis management plans. Doing so will not only make their strategies more robust but also gain them credibility when being reviewed externally by investors. After all, two minds are better than one.
  
  A further way for CFOs to generate trust in their business’ crisis planning is by regularly exercising them, even in the event of no emergency. This will make staff better at enacting such initiatives plus offer the opportunity to evaluate how effective they truly are, potentially leading to improvements.
  
  By taking precautionary actions such as those mentioned above, CFOs signal to investors that they are not only looking forward, but they are doing so with a 360-degree lens to responsibly steer their business.

Invest and we’ll do the rest

For any CFO, retention of their funds to drive growth is high up their priority list. A statement like “sell in May and go away” therefore isn’t what they want to hear. Instead, they should be aiming for their actions to project the message to “invest and we’ll do the rest”.

Achieving this however isn’t always easy for CFOs given the numerous responsibilities they have. That’s why we deliver exactly the same message – “invest and we’ll do the rest” – to over 600 CFOs who trust our automated reconciliation software.

Through investment in Aurum, the likes of Admiral, Octopus Investments and Ladbrokes have all been able to free up valuable resources, reduce time spent on financial closing, identify fraud quickly, and continue to scale with no growing pains, no doubt pleasing their investors. All the while, we handle reconciling huge amounts of complex transactions for them in seconds so they can deliver accurate and timely reports.

If you’re looking to keep your investors onboard, get in touch with us to book a demo today.