“SELL in May and go away”

is a familiar axiom for shareholders.

But this year, small investors who regard equities as an escape from rock-bottom savings rates paid by banks and building societies face a real dilemma.

Since the start of March, London’s FTSE 100 index, measuring the value of the UK’s biggest firms, has jumped nearly 25 per cent.

Spectacular recoveries include a five-fold jump in Barclays Bank’s share price – while housebuilder Taylor Wimpey bounced from 4p to nearly 50p.

Bill Mott, at PSigma Income Fund, says: “Some of our holdings rebounded in a remarkable way: Travis Perkins climbed from 213p on January 5 to 790p, while Enterprise Inns has reached 178p, from 30p on January 30.”

Rises like this have boosted millions of private sector pension pots, and brought out “day traders’” who often hope to buy and sell within days.

Can recovery last – or will these gains melt as the Governor of the Bank of England talks of a long and painful recession?

There is no doubt that most shares, as an investment class, remain highly risky at present. Large firms are as vulnerable as tiddlers.

More than 1.1 million small shareholders at BT, for example, saw their dividend slashed this week – from 15.8p per share last year to 6.5p in this year – in the face of a pension deficit would could hit £10bn. With the money saved, BT will pour £525m a year into its pension pot for three years.

Against that grim news, leading shares expert Anthony Bolton at fund manager Fidelity says: “We have already started a new bull market.”

No wonder small investors are dabbling again.

Angus Rigby, chief executive of leading execution-only broker TD Waterhouse, says: “Our customers vastly increased their purchasing activity this week, with over twice as many stocks bought as sold. Overall, we saw a 26 per cent increase in trading activity, with an 82 per cent increase in the number of shares bought compared to last week.”

The average Waterhouse customer manages a £50,000 portfolio, with four main holdings.

Savvy investors, says Rigby, are chasing shares in US companies, and others in Canada and Australia, in the belief those countries will recover faster than Britain.

The “top four” buys by Waterhouse investors last week – Royal Bank of Scotland, Lloyds Banking Group, Barclays and Taylor Wimpey – suggest traders are seeking a fast profit rather than longterm investors.

However, Meera Patel, senior investment analyst at financial advisor Hargreaves Lansdown, thinks most people are still too scarred by the crash to return to equities at this stage.

“Small investors who want ISA cash to produce better returns have tended so far to move it into managed equity income funds and corporate bond funds,” she says. “Riskaverse investors simply won’t touch shares at present.”

Ms Patel thinks the return of small investors is more likely in the second half of this year, following a correction or fall after this surge which few anticipated.

“The market has moved significantly since March because big institutions and funds have tried to find shares at bargain-basement levels in banks, property firms and other cyclical areas where values hit rock bottom,” she says.

Nick Raynor, investment advisor at the Share Centre, which claims a 50 per cent growth in the number of new customer accounts opened in the first quarter of this year, sees it differently.

“After a ten per cent rise in the past fortnight, we expected a bit of a stumble,” he says.

“It is really hopeful speculators who are pushing this market, while institutions and pension funds sit on cash.

Until they decide to come in, we remain very cautious indeed about genuine recovery.

“For two or three weeks, our clients have been buying banking shares, although we think they are foolish to do so.

People are chasing a quick buck, buying cheap in search of a quick profit.”

Mr Raynor urges investors to seek out only the quality companies with balance sheets strong enough to outlast the downturn – including BP, Glaxo and firms such as Balfour Beatty, Carillion and Serco, the latter group underpinned by committed Government construction/infrastructure projects.

Paul Kavanagh, at Killik and Co, a broker managing about £2bn for 25,000 private clients, sees both sides of the argument.

“Although we are clearly past the danger of Armageddon in the global financial system, there is a split in where people see markets going from here,” he says.

‘‘Do we re-test low points which the market touched a few months back? Probably not, but only the brave expect it to go much higher than it is already.”