Sell in May and Go Away
An old maxim on Wall Street is simple and straightforward: "Sell in May and go away". This saying is not new, and may trace its roots back to our friends across the pond. A London version of this market timing strategy is similar: "sell in May and return on St. Leger’s Day", referring to a horse race held in late September. Regardless, what you want to know is does this work. Does this strategy hold up to statistical evidence, and should we implement this in 2019? Let me share some facts.
According to Investopedia, from 1950 thru 2013, the evidence supports this strategy. A substantial difference in returns occurred between the months May-October when compared to November-April favoring the November thru April time period. The difference was about 7%. Yes, I said 7%. In other words, a very simple strategy might add a substantial amount of return, before taxes and trading costs. That is enough to get Wall Street’s attention AND yours, I would bet.
What would I do if I raised cash each year in May, and then reinvested in the autumn months? For those of you that know me well, your answer to this question would be quite simple: Ralph would go fishing. But more importantly, what would you do? Would you take the risk and create a taxable event? Remember, sales come with capital gains attached….or at least that is the objective. Would you be able to hold cash for a sustained period of time and resist the temptation when stock prices go lower? Would you be able to turn off the financial news channels and enjoy the relative ease? These are rhetorical questions, of course. You don’t have to answer them.
Unfortunately, since 2013, this strategy has had mixed results. As with all good things on Wall Street, the sharks squeezed this opportunity right out of existence, as they usually do. That is also the nature of capitalism. Google Schumpeter if you need further evidence.
This May, I suggest you review your investments. If you own something that has not delivered the results you were expecting, consider selling it. And if you own investments that are doing a good job of compounding your capital, keep them. I would also suggest this exercise in any other month that has at least 28 days. How’s that for a surefire strategy to improve your portfolio?
Ralph McDevittApril 25th, 2019
