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Sell in May and Go Away? - Market Timing

Sell in May and Go Away

As an investor, have you ever heard the saying, “sell in May and go away, do not return until St. Leger’s Day?” At first it seems to be an odd saying, but it actually originates with stock brokers in old England. They would go on summer vacation and not return until the horse racing season ended.1 The last race of the season was the St. Leger’s Stakes in mid-September and was the last leg of the British Triple Crown.

Investors in favor of selling in May and going away would literally do just that – sell their equity investments in May and then return to the market in November. Their aim was to dramatically reduce their risk in the more stagnant summer months while enjoying some umbrella refreshments in the sun.  

The adage has remained because of the historical market under-performance from May to October. From 1950-2013 the DJIA averaged returns of only 0.3% while the winter months (Nov-Apr) saw average returns of 7.5%2.

These returns may be attributed to American trader habits between Memorial Day and Labor Day, much the same as the old English stock brokers – we go on vacation! In fact, Americans are six times more likely to take a summer vacation than opt for a vacation in any other season.

Given the substantial uptick in summer vacations it makes sense that investors would be less attuned to market conditions. However, a more inclusive and up to date data set as shown below isn’t as supportive of “selling in May,” and instead suggests a slightly different picture4.

Should I Try to Time the Market?

“Selling in May” only to return a few months later in the hopes of capitalizing on winter gains is, put simply, an effort to time the market. And while it is often bad mouthed, market timing isn’t inherently bad. After all, every investor is trying to time the market when they enter – people don’t TRY to buy high and sell low (aka losing money); they are entering the market under the assumption/belief it will go up.

The main problem with timing the market is that it’s a full-time job! Keeping up with market historical trends, company fundamentals, what’s going on in the world, etc. are all things that impact market performance. Unless it happens to be your full-time job, most people rarely want to put that much effort into it.

There are over 9,000 mutual funds in existence, roughly 2,800 stocks on the New York Stock Exchange (keep in mind there are other exchanges), and over 5,000 ETFs available. To say researching investments is overwhelming for individual investors is quite the understatement! Luckily, it’s part of what we love to do. While most people cringe at the site of spreadsheet upon spreadsheet and fund prospectus galore, we accept the challenge of finding the most suitable investments for your portfolio.  



Resources

  1. Roberts, K. (2019). The Real Reason We Say 'Sell in May and Go Away'. [online] TheStreet. Available at: https://www.thestreet.com/story/13141588/1/the-real-reason-we-say-sell-in-may-and-go-away.html [Accessed 22 Mar. 2019].
  2. Segal, T. (2019). An Inside Look at 'Sell in May and Go Away'. [online] Investopedia. Available at: https://www.investopedia.com/terms/s/sell-in-may-and-go-away.asp [Accessed 4 Apr. 2019].
  3. Alamo.com. (2019). I Spy...a Family Vacation!. [online] Available at: https://www.alamo.com/en_US/scenic-route/american-family-vacation-habits-study.html [Accessed 16 Apr. 2019].
  4. Yardeni, E. and Abbott, J. (2019). Stock Market Indicators: Historical Monthly & Annual Returns. [ebook] p.1. Available at: https://www.yardeni.com/pub/stmktreturns.pdf [Accessed 23 Apr. 2019].

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