Sell in May? Maybe not
History suggests that selling stocks every year on this month is not always a good strategy.
By Jim Stack, Investech Market Analyst
Over the last 50 years the seasonal cycle in the stock market has awarded investors the majority of their gains from November through April.
To support the belief that investors should "Sell in May and go away," the case is made of two investors who both start investing in the S&P 500 ($INX) in 1960 with $10,000. In this scenario, Investor A invests from November 1 through April 30, while Investor B alternately invests from May 1 to October 31.
Both reinvest dividends during their respective six-month holding period and sit in cash the other six months.
There is dramatic difference in total return. While Investor B more than doubles his money, Investor A multiplies his initial investment by over 50 times.
This historical truism confirms a strong bullish seasonality from November through April.
Yet there is more to this story that reveals why "Sell in May..." shouldn't always dictate an investor's overall strategy.
In fact, it would be a fallacy to think that every six-month period from May to October results in a loss for investors ... and here's why:
After delving deeper into the historical data since 1928, we find that the S&P 500 has put in a positive performance 64% of the time from May to October, including last year.
While there were 13 double digit losses during the May-October period in the past 83 years, all of them occurred during bear markets with other warning flags present. During bull markets, the only losses in this May-October period were single digit losses; and of those, the median loss was only -1.2%.
When we look at monthly performance for the S&P 500 since 1960, the strength in August and October more than offset the weaker months.
Bottom line: While the Wall Street truism "Sell in May and go away" does carry historical truth, it is more important in bear markets when potential losses have been higher.
As long as the technical bull market blocks remain in place, it is more prudent to maintain a diversified strategy that is focused on continued positive gains.
More from TheStockAdvisors.com
Darn. I thought it was "Sell in March, then go eat some starch"
Now I've sold all my equities and have a ton of weight to lose. Stupid sayings...
Good point Mike, Some or many would call that...A Buy and Hold Investor...
Many have "reigned supreme" over the Decades..No reason to name.
For many of us to try and "time the Markets" is almost a lost cause..
And actually little difference long term...IMO
But any good investment portfolio, has to be "tweaked occassionally."
Taking profits is a good thing, but sometimes taking losses can help season an investor.
a sharp....That's kinda been the plan right along...
With that in mind certain equities could be affected?
Greenspan started out somewhat in control, but became very accustomed to "knee jerk" reactions, therefor losing sometimes what might have been gained...?
I believe Bernanke learned or profitted from Greenjean's mistakes..?
And of course this last go around, was somewhat different.
The written History and the Future lying ahead, remain to be judged.
Cautious yet optimistic ! When the Unemployment rate gets close to 6.5%, that's the trigger that everyone's looking at as to when the well 'dries up from "Uncle Ben'. But even that inevitable scenario could be controlled as to not cause too much pain as we wean ourselves off it. As long as the Fed doesn't act rashly, we'll go though the summer months pretty well, even with the usual volatility.
So until then, don't fight it- ride it- all the way to the bank ! Yippeeeeeeeeeeee!!!
One of the problems I have with massive Global Fed Money Printing is that you truly don't get Fair Price Discovery in the Markets. In the long haul, that can be a huge problem.
Buying opportunities, exist on a quarterly basis....May-June usually have some and then again in the Fall.....Guess it depends on the Business or Company...?
I don't need to read the Article but will;....
The Recovery back to normal and then upswings in some Equities is quite noticeable after any drops in May..
ernanke is the only good appointment Bush made.Those of us who were smart to put
money in the market are making a ton.The idiots that didn`t believe in Obama are
angry and bitter and hope for a market crash.That will happen when we get a Repub
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
3 stocks will be in the spotlight Thursday as investors try to make sense of the numbers from the sector.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.