New York, New York asks…
Mitch, there’s an old investing adage “Sell in May and Go Away,” that’s based on notoriously weak summer returns. I think about doing this every year—does it make sense?
The “Sell in May” adage makes its way into the equities market narrative every year, so I’m not surprised you’re hearing about it again. Looking at historical statistics, I will concede that there’s a decent, but by no means strong, argument for ditching stocks for a six-month period starting in May. Since 1928, the S&P 500 has pretty widely outperformed during the November–April period relative to the May–October months, producing a +5.1% average return versus the meager +1.9%.
But the fallacy of the “Sell in May” strategy is also apparent as the May–October period is still positive on average. Since 1928, the actual month of May has been positive 49 times and negative 39 times, meaning if you took this approach the odds of being correct are already stacked against you.
The last two years prove as much. In 2014, the “Sell in May and Go Away” strategy would have crimped portfolio returns since the S&P 500 rose some 7% during the May–November period. Trying the strategy in 2015 would have also been largely ineffective, since it would have meant buying into the S&P 500 at essentially the same level you sold. An investor would have avoided the steep summer correction last year but would have also missed the compelling “v-shaped” bounce off the bottom. There are too many examples of the strategy not working to take it seriously.
The May–October period may not be the strongest six-month period historically, but it’s still positive on average. If there’s any adage you should follow, I’d recommend, “It’s time in the market, not timing the market.”
Disclosure