Is ‘SIMAGA’ the secret to avoiding stock market crashes?
Having started investing in 1986/87, I’ve witnessed several stock market crashes. My first was Black Monday (19 October 1987), when the Dow Jones Industrial Average collapsed by 22.6% — its largest one-day percentage fall.
What defines a crash?
Generally, stock market crashes are caused by steep and sustained price falls, leading to declines of 20%+ from previous peaks. Some meltdowns are short-lived, while others last years.
Two recent crashes came in spring 2020 (triggered by Covid-19) and this April (following President Trump’s ‘Liberation Day’ tariffs). Both downturns were fairly brief, with share prices quickly rebounding.
What is SIMAGA?
SIMAGA stands for ‘sell in May and go away’. This abbreviates an old London market saying: “Sell in May and go away, don’t come back until St Leger’s Day.” To avoid summer slumps, investors would steer clear of shares from May until mid-September.
Before stock markets became dominated by computerised trading, this advice frequently worked. When wealthy folk left London to avoid the ‘summer stink’, trading was subdued and share prices slipped. When traders returned in the autumn, prices often rebounded.
While the month of May has a poor track record for returns, computerised trading has killed many market trends that previously persisted. Even so, monthly returns do tend to be higher from 1 October to 30 April (seven months) than from 1 May to 30 September (five months).
I considered SIMAGA this year
Despite my misgivings about SIMAGA as a buy-and-hold investor, I considered selling this May. Our ultra-low-rate mortgage — a wonderful five-year fix at 1.24% a year — ends in September. Rather than face higher repayments, my wife and I have decided to retire our home loan permanently.
To do this, we must sell some selected shares, because our cash pile isn’t enough to clear this debt. But then share prices plunged after Donald Trump announced new US import tariffs on 2 April. With prices down 20% at one point, I decided to sit tight. Thankfully, the US market has since hit new highs, with the FTSE 100 close behind.
Also, I am wary of SIMAGA because it ignores the double dealing costs of selling out to buy back later. It also overlooks some cash dividends paid by many UK shares. That’s why SIMAGA isn’t for me.
I’ve bought more shares
Meanwhile, UK stocks look undervalued, so our latest new holding is in Greggs (LSE: GRG). This FTSE 250 share plunged on Wednesday (2 July) after it warned of slowing sales growth during the heatwave.
After this battering, I believed the bad news was fully baked into the Greggs share price. So we bought into the food-to-go chain, paying 1,696.7p a share. At their 2024/25 peak, the shares hit 3,250p, but now trade on below 11.5 times earnings. The dividend yield of 4% also appeals to me.
With around 2,650 outlets and 33,000 staff, Greggs is a leading provider of cheap food to take away. But if this summer swelter continues, sales might slide again. This could harm 2025 profits and earnings, plus targeted price cuts might hurt margins. Also, £100m of extra National Insurance contributions is unwelcome.
Even so, we intend to hold these new Greggs shares for years. Therefore, we will have to find other stocks to sell by September!
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The Motley Fool UK has recommended Greggs. Cliff D’Arcy has an economic interest in Greggs shares. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
