One popular piece of market lore revolves around the idea that virtually all of the stock market’s cumulative gains over large chunks of the past have come between November and May. The other half of the year, from May to November, has produced little in the way of gains, on average. Hence the saying, “sell in May and go away.”
There are three challenges facing anyone who seeks to act on this supposed wisdom. The first one is, any widely expected event gets discounted by the market as it gains currency with the public. If the saying works, it will get overexposed until it stops working.
The second challenge is, the statistics on which the lore rests are averages—they say nothing about what happens in any particular year, much less about what will happen this year.
The third challenge is the most interesting of all. When one examines the results of not selling in May and never going away, one wonders what more could be desired. I (Mark Leibman) was born in May 1956, when the S&P 500 Index stood at 44. As I write this, the index is 47 times higher. This calculation of a 4,600% profit excludes dividends, which would have added considerably. This tells us how not selling in May would have worked over the past nearly sixty years.
Our purpose in writing is to help you avoid being tricked by the “Sell in May” idea into a short-sighted investment decision. There are always reasons to worry about the future, developments which alarm people, and fear mongers peddling pessimism for profit. Against the dynamism and ingenuity inherent in human endeavors, these fears and worries have yet to produce a permanent downturn in the economy or the market.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss.
Indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.