Sell in May? Maybe not

History suggests that selling stocks every year on this month is not always a good strategy.

By TheStockAdvisors May 1, 2013 10:05AM

Stock market report © CorbisBy 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

Tags: $INX
31Comments
May 1, 2013 11:21AM
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The comparison outlined above would be much more valuable if they added a 3rd investor (Investor C) who stayed invested in the market year round and the article presented those return results as well. If someone were not using the strategy to "Sell in May," it is highly doubtful they would just invest from May-Nov. Most investors would simply not "Sell in May" but rather stay invested all year.
May 1, 2013 11:30AM
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This is a time to be cautious. The data isn't all in, but so far, the economy is struggling along. I'd say it is basically on life support from the Fed. 

My advice would be to weed out any weak positions or high flyers. I have mostly mutual funds with mangers who have demonstrated over decades they know what they are doing. I have some sector bets (banks) that are risky, but I bought 'em cheap and after the market tanked. They are my high flyers or gambles. They'll either make me a lot of money or lose a lot. 

Regarding the Fed, from reading carefully what it is saying, I believe they are going to start slowing down the stimulus. The consequences of these artificial rates are quite profound and eventually will create more problems than they'll cure. 

Some day over the rain bow, the economy either has to revive or we'll become another 3rd-world country. Come to think about it some of them are doing quite well which might account for all those beaners sayin' adios Estado Unidos!

Har har har!
May 1, 2013 10:44AM
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it's an artificial, propped up market. what more do you need to know? that it will continue to be an artificial propped up market?
May 1, 2013 11:07AM
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The market will continue to adjust higher for the 85 Billion a month Helicopter Ben is printing.  When the printing stops we will have massive problems and in all likelihood a depression.

The problem is that as long as this printing continues the middle class and the poor will be crushed.  Their savings and pay checks continue to be eroded by this massive printing.  With their wages being cut every month, they grow poorer.  This is classic Marxist theory right out of 'Das Kapital'...   In order to eliminate the bourgeoisie, it is necessary to destroy  their savings and pay envelopes.  The preferred method is to print fiat currency.  Once the bourgeoisie are eliminated the rich will be easy to dispose of....  

This will not end well....
May 1, 2013 10:13AM
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An intelligent person would see this as a buying opportunity.  Maybe intelligent isn't the right word.  Common sense is rare these days.
May 1, 2013 11:47AM
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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...

May 1, 2013 12:40PM
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Stop your whining forum morons. Become real men. Real men are Republicans, believe in God, and make lots of money!

Har har har!
May 1, 2013 12:00PM
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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.

May 1, 2013 12:47PM
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If I recall correctly, the 'Sell in May and go away...' saying originated specifically for the seasonality of the metals and mining sector, and not for the broad market in general.  So my guess is this strategy works better for metals/mining as compared to any other sector or broadly.
May 1, 2013 3:07PM
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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.

 

May 1, 2013 1:26PM
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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!!!

 

 

May 1, 2013 9:43PM
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If some money was made since 1960 from May through October and some money was made November through April, the guy who kept his money in and never sold would make more than either of the guys that sold in May or October.  The author makes a bogus conclusion based on the data.  Check my logic on this.  Am I wrong?
May 1, 2013 6:08PM
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I agree with Mike M.  Why not give us the results for the third investor?
May 1, 2013 12:09PM
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It's kind of dishonest to on one hand talk about the issue of zero percent on savings accounts without acknowledging that the Soaring Stock Markets can more than make up for that loss of income.  Heck, by most accounts, most people don't even have enough in saving for zero percent rates to even matter. So If you have been maxing out your 401K and your employer matches dollar for dollar, what's the problem other than for Seniors that have already retired.

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.

May 1, 2013 12:34PM
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You had to figure that bad news had to come out on jobs and other key indicators (auto sales are not).  With all of the liberal bluster coming out the last few days from this website (Aimee Picchi, theStreet, and whoever wrote that slanted article on wind and solar power), they wee trying ot build defense to such lousy performance by current fiscal policy.
May 1, 2013 10:35AM
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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..

May 1, 2013 12:03PM
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You don't use historical reference to figure out if sell in May works or not. We are in uncharted territory. Almost everyone gets that, except the guy writing this article. Forget everything that you have been taught since we are being pumped up by Global FEDS. Some of which that are buying stocks. When Gravity takes over, no entity will be able to stop it. It will be Epic.
May 1, 2013 11:36AM
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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

president.That`s history.

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