Sell in May and Go Away!

Sell in May and Go Away! by John MaguireApril showers bring May flowers.”

We have all heard this rhyme at various points in our lives. But how many of us are familiar with the investment adage to “Sell in May and Go Away?” This saying originated in England, and the most credible version was, “Sell in May and go away, do not return until St. Leger’s Day.” Established in 1776, St. Leger’s Day falls on the second Saturday in September and is famous to English horse racing fans as the final leg of Britain’s five Classics.

Historically, many investors would take frequent and long vacations during the summer months in England. This led to decreased activity and lethargy in the stock markets. Over the years, the dog days of summer have brought Wall Street its worst performing months of the year.

Since 1950, September has been the worst of the worst, with a cumulative return of -0.64% (including 35 months with negative returns and 29 months that have been positive). By contrast, according to the Stock Trader’s Almanac, the six-month span from November to April has produced the best returns, averaging approximately 7.5% since 1950.

But keep in mind, these are all broad brush strokes, and there are risks with the strategy of selling in May:

  1. Although this timeframe often underperforms the November-April period, it has still averaged a positive (albeit modest) return of 0.3% since 1950. The loss would have been especially acute in May 2013, when an investor would have missed a 5.37% return by selling just before the first of May and going away.
  2. There are costs to selling, perhaps most notably commissions as well as capital gains taxes. These costs should not be underestimated since there will be commission costs in getting back into the market later in the year.
  3. It has been repeatedly proven that, despite their statistical underpinnings, market timing and seasonality strategies do not always pan out.

Another factor to weigh is that over the last five years the S&P 500 is up by more than 110% – that’s no typo, we are talking about more than doubling.

So where does this leave us when contemplating the “Sell in May and Go Away” saying? A better thought might be to use a market sell-off in September to rebalance your account and stay fully invested.

Disclaimer: The information contained in this article is not a solicitation to sell securities or investment advisory services where such an offer would not be legal. Information included in this statement regarding market or other financial information is obtained from sources believed to be reliable. Past performance is never a guarantee of future performance.

John Maguire

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