"Sell in May and Go Away"

[tangomonster]

The latest issue of Newsweek says that it may be wise to sell stocks after this spring's run-up because "stocks often tumble as the temperature rises--big money from December dividends, year-end bonuses, and April IRA contributions have already made it into the market."

According to the research (They're quoting from Ned Davis Research), if you'd put $10,000 into the S & P on May 1st, 1950, selling every May1st and buying in October, you'd have more than $600,000. If you'd done the opposite and invested every May 1st and sold every September 1st, you'd have $12,083. If you had just let it ride in a buy-and-hold strategy, you would have $129,515.

DH and I have always tried to buy and hold, feeling that we wouldn't be successful in timing (greater minds than ours have failed in this), but even before I read this article I've been thinking that it could be good to sell (not everything, but the net gain) take the tax bite, and reinvest in tax-free stuff. Any opinions on this? And does anyone know if it's true that $10,000 in the S and P in 1950 would have grown to "only" $129,000?

 

[REWahoo]

On the other hand...

"Why selling in May could wind up leaving profits on the table this year."

If your asset allocation is set, sit on your a$$.

 

[FIRE'd@51]

And does anyone know if it's true that $10,000 in the S and P in 1950 would have grown to "only" $129,000?

$10,000 invested in the S&P 500 on Jan 1, 1950 would be worth $6.38 million at the end of 2006 with all the dividends reinvested (works out to 12% per year compounded).

 

[TromboneAl]

I feel it's important to make all investment decisions based on rules that rhyme. Here are my most valued rules. I got these from Johnny Cochran:

Sell in June, and avoid ruin
Buy in July, if you feel bully
Buy in August, and keep things robust
Sell in September, if you remember
Sell in October, and you'll wish for a do-over
Sell in November, just like September
Buy in December, and you'll have a big member
Buy in January, don't be fairy
Buy in February, just like an actuary
Sell in March, and plant a larch
Buy in April, but leave some for paying your taxes
Sell in May and then go away.

 

[teejayevans]

I feel it's important to make all investment decisions based on rules that rhyme. Here are my most valued rules. I got these from Johnny Cochran:

Sell in June, and avoid ruin
Buy in July, if you feel bully
Buy in August, and keep things robust
Sell in September, if you remember
Sell in October, and you'll wish for a do-over
Sell in November, just like September
Buy in December, and you'll have a big member
Buy in January, don't be fairy
Buy in February, just like an actuary
Sell in March, and plant a larch
Buy in April, but leave some for paying your taxes
Sell in May and then go away.

I think you need to work on your rhymes, especially April

The May rhyme really doesn't tell you when to come back into
the market, IIRC, the market did well in the July-Oct time frame,
where normally it doesn't do so well.
TJ

 

[FinanceDude]

On the other hand...

"Why selling in May could wind up leaving profits on the table this year."

If your asset allocation is set, sit on your a$$.

Or your a$$et$.................

 

[ScaredtoQuit]

Buy in December, and you'll have a big member

Oh boy! I can't wait for December to get here!!

 

[sgeeeee]

. . .
Buy in December, and you'll have a big member
. . .

Although I have noticed that investment discussions often seem to suffer from too much testosterone, this is the first time I have ever seen investment decisions tied directly to sexual proficiency. It does rhyme though.

 

[unclemick]

Yep

heh heh heh heh heh heh heh heh

And don't forget to eat your whole wheat bread while investing. 8).

 

[Alex]

Sell in may,
then pray.
That you know
when.
To get back in
again.

 

[al_bundy]

i have never read the article, but i read in a book that Fortune magazine had an article in 2002 where they found the same thing except they said sell in april and buy in november.

if you look back most year 7 of a decade has a summer rally and there is usually one in the year before an election year so I think we still have some steam left. I'm thinking another 5% to 6% and then i'll be looking to sell into another correction

 

[chinaco]

I have read a number of books from wall street gurus that show studies on seasonal trends, holidays, other ideas related to how the market reacts at time with some form of backtest.


The funny thing is that I have not seen any of those authors claim to run their mutual funds or money that way.

And if they did, we could see their actual performance numbers and they would have far outpaced the S&P 500.

I believe something exists with seasonal trends... but few use it... So I am not convinced it is a great idea.

 

[LOL!]

I like to rebalance during March-April to take advantage of this perceived effect.

 

[al_bundy]

I have read a number of books from wall street gurus that show studies on seasonal trends, holidays, other ideas related to how the market reacts at time with some form of backtest.


The funny thing is that I have not seen any of those authors claim to run their mutual funds or money that way.

And if they did, we could see their actual performance numbers and they would have far outpaced the S&P 500.

I believe something exists with seasonal trends... but few use it... So I am not convinced it is a great idea.

if you have a $100,000 401k account it's as easy as a click of a mouse to sell everything. if you run a $1 billion fund you have little details like the fund charter and restrictions on cash and the fact that you probably own so much stock that it would take months to sell everything or you risk of driving the prices down. same thing when it's time to buy again, it would take weeks or months to build up positions to make a dent. if you are in charge of a $10 billion or larger fund it's impossible.

i read that the WSJ or some other service tracks mutual fund cash percentages and that the best time to buy is when it's higher.

 

[chinaco]

if you have a $100,000 401k account it's as easy as a click of a mouse to sell everything. if you run a $1 billion fund you have little details like the fund charter and restrictions on cash and the fact that you probably own so much stock that it would take months to sell everything or you risk of driving the prices down. same thing when it's time to buy again, it would take weeks or months to build up positions to make a dent. if you are in charge of a $10 billion or larger fund it's impossible.

i read that the WSJ or some other service tracks mutual fund cash percentages and that the best time to buy is when it's higher.

You are correct. Not to mention the tax burden of moving to all cash (short-term gains). Plus most equity Mutual fund charters require most of the moeny to stay in stocks.

Of course, an individual with a tax deferred account would not have that problem.

The other benefit according to Marty Zwieg is that you lower risk, because your money is not exposed to the market year round.

Still... I do believe there is something there. LOL! approach makes sense to me (use the time for rebalance if you are using a time based approach instead of a trigger).

I have not had enough faith in the approach to use it. I have read about some Financial Advisor services that run people's money and use the technique.

Are you running your money using that technique? Things change a bit when it goes from a curious/interesting conversation to actually using the technique with your money for the next 25 years.

 

[haha]

Are you running your money using that technique? Things change a bit when it goes from a curious/interesting conversation to actually using the technique with your money for the next 25 years.

Not to disagree with what I think is your point, but why would you need to commit for 25 years in advance?

Ha

 

[al_bundy]

You are correct. Not to mention the tax burden of moving to all cash (short-term gains). Plus most equity Mutual fund charters require most of the moeny to stay in stocks.

Of course, an individual with a tax deferred account would not have that problem.

The other benefit according to Marty Zwieg is that you lower risk, because your money is not exposed to the market year round.

Still... I do believe there is something there. LOL! approach makes sense to me (use the time for rebalance if you are using a time based approach instead of a trigger).

I have not had enough faith in the approach to use it. I have read about some Financial Advisor services that run people's money and use the technique.

Are you running your money using that technique? Things change a bit when it goes from a curious/interesting conversation to actually using the technique with your money for the next 25 years.

no luck timing last year, but i caught this year's correction before it happened and got in before it crossed back above the last high. I read John Murphy's intro book a few months ago, some other technical analysis book whose name i can't remember and right now I'm reading Marty's Winning on Wall Street along with John Murphy's Technical Analysis of the Financial Markets. I also plan to reread William O'neill's book soon especially the chapter on market topping signs and rallies.

I don't think you can day trade with this stuff and i have no idea what the market is going to do next week or think i will ever learn to predict it but I think knowing some basic technical analysis can get you pretty good at catching corrections and going to cash as well as buying early into a rally. Most times the market makes most of it's gains in a few months of the year and the rest of the time is a loss or dead money.

my goal is to mostly stay out of corrections and use the money saved for better overall gains. my math says if i can beat the vanguard sp500 index fund by 1% a year over 30 years it's a lot of money.

 

[Spanky]

Now that the secret is out .. so the strategy is to buy in May where everyone is selling and sell in October while everyone is buying.

 

[Alex]

no luck timing last year, but i caught this year's correction before it happened and got in before it crossed back above the last high. I read John Murphy's intro book a few months ago, some other technical analysis book whose name i can't remember and right now I'm reading Marty's Winning on Wall Street along with John Murphy's Technical Analysis of the Financial Markets. I also plan to reread William O'neill's book soon especially the chapter on market topping signs and rallies.

I don't think you can day trade with this stuff and i have no idea what the market is going to do next week or think i will ever learn to predict it but I think knowing some basic technical analysis can get you pretty good at catching corrections and going to cash as well as buying early into a rally. Most times the market makes most of it's gains in a few months of the year and the rest of the time is a loss or dead money.

my goal is to mostly stay out of corrections and use the money saved for better overall gains. my math says if i can beat the vanguard sp500 index fund by 1% a year over 30 years it's a lot of money.

what does your math tell you if you underperform the S&P500 by 1% a year for 30 years

 

[chinaco]

Not to disagree with what I think is your point, but why would you need to commit for 25 years in advance?

Ha

You would not need to stick with it for 25 years. One could try it for 5 years. Not to be too dogmatic about discipline. But if one is shifting approaches... it would not seem to be a management style, rather shifting styles of managment that are likely to lead to inconsistency.

My main point was: If one really believes in it and has confidence in it... why wouldn't it be the permanent management style? Who doesn't want to beat the market and have less risk?

Bottom line, this is a market timing style of management based on certain seasons or events. If one does not stick with the approach, then how would one beat the market?

 

[al_bundy]

what does your math tell you if you underperform the S&P500 by 1% a year for 30 years

risks in everything

one year I dca'd money into my 401k all year and underperformed the rate of return of the funds because i put in money at the times when the market was high

 

[HFWR]

Higher than what? The next day? Week? Month? Year? Ten years?

Gives me a headache...