Sell in May

[ripper1]

Sell in May and go away.....Where did this come from. Is this herd mentallity or are we in a legitimate correction?

 

[NYEXPAT]

Looks legit to me.

 

[MichaelB]

This was recently discussed here http://www.early-retirement.org/forums/f28/sell-in-may-and-go-away-60838.html

 

[EvrClrx311]

I forget the author, but I read a book not long ago that went deeply into the numbers on this one. He had access to the COMPUSTAT dataset with monthly/weekly data going back all the way to 1963. Out of the 10.5% average yearly return the market produced... 10% of it came between September and May. The Summer months averaged returning a hair over 0%. Pretty remarkable for so much data... certainly not random.

My guess is that the summer is when people remove money from investments to safeguard it for travel, trips, plans... while late fall and winter months are better for businesses (holiday seasons)

More detailed modeling of the phenomenon recently has shown that the worst months of the year are actually July/August... for the last few years May/June have actually done particularly well.

The reason a lot of people warn against it is that the summer isn't necessarily bad returns... it's just flat on average. When you start jumping in and out and run the risk of getting out at a dip and in at a top (you're essentially trying to time the market... or guess what it'll do)... although the summer averages out to being flat, it definitely goes up some year and down others. So you open yourself up to the risk of losing value over having just stayed in the whole time.

Not to mention the cost of buying/selling (taxes, trading costs, etc...)

 

[akck]

I remember reading that the old saying was based on May being the time when brokers, money makers and investment bankers would sell their holdings and go off to their summer vacation homes. They'd buy back in once summer vacation was over.

 

[NYEXPAT]

money makers

Nice work if you can get it!

There have been many studies done over the years on this and other "Wall Street adages", and while they do have some validity, they are not a basis for investment decisions.

My two favorites which I heard at the dinner table every night (as a kid) were.

1. Its better not to know so much, then to know so much that is not so!
2. You can make more money with your A$$, then you can with your brains!

Both these adages (i believe) were coined by one of the founders of General American Investors Corporation.

 

[eytonxav]

Nice work if you can get it!

There have been many studies done over the years on this and other "Wall Street adages", and while they do have some validity, they are not a basis for investment decisions.

My two favorites which I heard at the dinner table every night (as a kid) were.

1. Its better not to know so much, then to know so much that is not so!
2. You can make more money with your A$$, then you can with your brains!

Both these adages (i believe) were coined by one of the founders of General American Investors Corporation.

The other adage or myth that I also love is "its already priced in by the market"

 

[clifp]

Schwab's chief market strategist Liz Ann Sonder has a recent column here on sell in May.

Much is made every year of the "sell in May" phenomenon. Its basis is rooted in the fact that the best performance for the market has generally come in the November through April period, while the worst has come between May and October.
There is some truth to the adage. According to data compiled by Ned Davis Research (NDR), through the beginning of May this year the average performance for the period from May 1 through October 31 each year since 1950 was 1.2%. The average performance for the period from November 1 through April 30 each year since 1950 was 7.0%.
As compelling as those numbers may seem, there are many things to consider, especially if it's your inclination to develop a trading strategy around those seasonal patterns. First, the calendar months individually tend to fall into either the "hot" or "cold" columns for performance, as you can see in the table below. Three of the six months that fall into the "all out" period spanning from May through October are actually historically strong months, while three of the six months that fall into the "all in" period spanning from November through April are actually historically weak months

Essentially if you want to follow the seasonality "trend" you really need to be in an out of the market in Sept, Feb, and May and back in the market the rest of the months. Easier said than done.

All that being said the exceedingly reliable W2R Whee signal was very clear this spring and I was sorely tempted to get out.*

*(Normally there would be a but after this several straight weeks of loss I am not so pleased.)

 

[frayne]

This year should have been sell in April ! But hindsight is always 20/20 so just forget about it and stay the course.

 

[W2R]

All that being said the exceedingly reliable W2R Whee signal was very clear this spring and I was sorely tempted to get out.

Hey, I tried but few listened. I probably called it a month or two too soon, I admit it, so maybe they were right not to listen. I was sure having fun doing my daily portfolio check for a while. Love those Whee periods on our roller coaster ride, and I am looking forward to the next one.

 

[Moemg]

All that being said the exceedingly reliable W2R Whee signal was very clear this spring and I was sorely tempted to get out.*

*(Normally there would be a but after this several straight weeks of loss I am not so pleased.)

I did not get out but I harvested some gains which I have done every time the Whee has been mentioned . It is the most reliable signal I have found .

 

[haha]

The other adage or myth that I also love is "its already priced in by the market"

Right. This is so obviously untrue, so often. The market is priced by a lot of emotionally unstable teenagers with a time horizon of 20 milliseconds.

Ha

 

[traineeinvestor]

Regardless of the statistics, if "sell in May" was a reliable strategy, everyone would be doing it (or, at least, anough investors to matter) and their collective action would drive the market down so you would need to sell in April before everyone else sold in May. Since I haven't seen many "sell in April" headlines, I'm assuming that hasn't happened and, therefore, conclude that "sell in May" is not sufficiently reliable to interest professional investors.

The local paper out here ran a piece on "sell in May" and pointed out that the local market had generated positive returns (even without dividends) in the May-September period for six of the last ten years.

That said, right now I'm wishing I had sold in April.

 

[almost there]

This year I sold in March, am buying back in now. 30% back in anyway.......
The thought of giving up the 8% from Jan was to much risk for me.
Rode through this cycle too many times to count.
Not this time. For better or worse. So far, I am feeling good about it.

 

[martyb]

I took my TSP out of the market on April 27th. My wife's 401k was already fairly conservatively invested, so while I'm sure she's lost some ground there, it won't be devastatingly bad, plus, I don't believe she has an option that's totally non-market. It's not really the greatest 401k plan out there, but it'll have to do. I haven't made any adjustments to our Roth IRA's either...they're in target retirement-type accounts set to a 2015 time-frame, so also not too aggressive and I'm not planning on messing with them either.

 

[Moscyn]

I always miss this sell in May principle since I am usually on vacation from end April to early May. By the time I come back from vacation, market is already down. So, guess I should remind myself to sell in April.

 

[Richard8655]

The market is making me nervous. Should have sold in April or early May, but stayed invested. Since then, every day seems to bring more bad news and another drop. Greece, Italy, and now Spain impacting world markets, China slowdown. Today was another 2% down.

I wonder for those here still invested, are you're able to turn a blind eye to all this, or are your nerves rattled yet and ready to sell?

 

[Moscyn]

I wonder for those here still invested, are you're able to turn a blind eye to all this, or are your nerves rattled yet and ready to sell?

I missed the sell in early May but did sell some investments a couple of days ago to realise some gains (though would have gained more if I sold them early May) before a further dip. For the rest of the investments, I guess I'll just sit it through. I have been through past downturns when I have missed the selling part and stayed invested. I don't think I'll be tempted to sell anymore for now.

 

[Dawg52]

I sold 1/2 of one stock, but that's it. Wish I had the magic touch.........but I don't. Yesterday I did nibble at a couple of stocks I already own and like for the long term. But overall, not doing much of anything.

 

[pb4uski]

....I wonder for those here still invested, are you're able to turn a blind eye to all this, or are your nerves rattled yet and ready to sell?

I'm not a market timer so I am still invested. I have confidence that my 60/40 AA will bobble around a bit but will ultimately prevail in the long run as it has for the last 20 years. Besides, the alternative is a 0.8% savings account.

I did do a timely rebalancing at the end of April and sold some equities and topped up my living expenses bucket to about 2 1/2 years.

 

[eytonxav]

Someone in the investment business told me that most of the sells of late have been coming from individual investors, while the institutions are doing the buying. If thats true, maybe its time to deploy some dry powder. Nevertheless, this has come pretty close to a correction as happened last August.

 

[rescueme]

I did not get out but I harvested some gains which I have done every time the Whee has been mentioned . It is the most reliable signal I have found .

+1 (I did the same)...

BTW, three years ago (in the spring), I sold off GMNA's and the equity side both last/this spring. I have no idea where the (future) market is going, but I "harvest" my gains when it makes sense.

 

[Donzo]

I finally sold some "dog" funds(very little return+very reactive) I had purchased years ago and sold them near there 5 year peak. That worked out to about a years worth of cash. Feeling good about that now! I have a feeling we are gonna see more carnage this summer....but who knows.

 

[frayne]

The market is making me nervous. Should have sold in April or early May, but stayed invested. Since then, every day seems to bring more bad news and another drop. Greece, Italy, and now Spain impacting world markets, China slowdown. Today was another 2% down.

I wonder for those here still invested, are you're able to turn a blind eye to all this, or are your nerves rattled yet and ready to sell?

The market has never made me nervous and I can honestly say I have never lost a minute of sleep over the gyrations of the stock market. I truly believe if you have a sound plan, stick with it and don't let your emotions get the best of you, all will be OK. As someone once said, we are our own worst enemy and I do think in most people's cases that is true.

 

[Richard8655]

The market has never made me nervous and I can honestly say I have never lost a minute of sleep over the gyrations of the stock market. I truly believe if you have a sound plan, stick with it and don't let your emotions get the best of you, all will be OK. As someone once said, we are our own worst enemy and I do think in most people's cases that is true.

Well, that sounds like the state of mind we'd all like to be in. Good for you. I'll just add that a little skepticism and worry is healthy too, instead of totally being in "set it and forget it" mode. The NASDAQ dot-com bubble of 10 years ago, where those prices never recovered, is an example of that.