Seasonal timing of the market - does it ever work?
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Hello readers, it's May, and you know what that means-pundits across the financial internets are bombarding the world with reasons they should or shouldn't follow that tired seasonal adage, "Sell in May and Go Away. Their occasional hits are coincidence without causality. The turn of a calendar page is never reason to buy or sell. We've spilled many pixels on Sell in May over the years-see herehereherehereherehere and here.
Here are some more pixels and pictures-pictures that show just how much investors can miss by sitting out the summer. The original saying, "Sell in May and go away, and come back at St. Leger Day," refers to brokers' tendency to take the summer off back in the old days, returning around the time of Britain's St. Leger Day horse race in September. Regardless of the timeframe, the underlying belief is this: Stocks are st ledger day buying opportunity cost bummer in the summer, so best to just get out, go on vacation, and laugh maniacally at everyone else when markets inevitably slide.
The very scant supposed evidence for this is the fact returns from April 30 - October 31, on average, trail returns from October 31 - April Add in some cherry-picked years where selling in May would have worked-most recently, and and the adherents consider the case closed.
Follow the increasingly standardized April 30 - October 31 blueprint, and you'd have missed a 0. And lost out on transaction costs and potentially taxes, depending on account type. May is just a st ledger day buying opportunity cost. So are the other The St ledger day buying opportunity cost through October window is an arbitrary six-month stretch, no more special than any other six-month stretch.
All rolling six-month stretches have positive average long-terms. So does every month but September, which is skewed by four data points, and The May-October period happens to be the weakest six-month stretch, but that's a statistical quirk, nothing more.
And it misses the point, because a 4. But for kicks and grins, if we go back all the way tousing the less-reliable-less-liquid-but-still-entertaining-and-sorta-useful-for-illustrative-purposes dataset of antique returns, May is still positive, and there still ain't no such thing as the summertime blues.
Investing in summer only still more than quintupled your hypothetical money. That is a moneymaker, not a money-loser. Which, of course, means you miss big returns st ledger day buying opportunity cost time if you follow Sell in May to the letter. Exhibit 6 shows just how much.
Or, if you prefer, Some say this is the year to sell in May because it's an election year, citing May's not-so-great average return in election years since But st ledger day buying opportunity cost average 0.
Returns were positive 11 of 16 times. The spectrum ranges from But last we checked, "Sell in May and come back in June" isn't a thing.
Using the traditional May - October window, election years average 3. Toss outwhen "Sell in May" would have avoided a Now, maybe Sell in May does work this year. Broken clocks and all. But short-term moves are impossible to predict, and selling now because short-term volatility might strike at some point in the next six months is not a recipe for success.
We aren't fanatical buy-and-holders, as it does make sense to take cover if you are darned sure-based on strong fundamental evidence-a bear market is forming. But other than that, if your long-term goals require market-like returns over time, then you should own stocks no matter what month it is.
That's how you get market-like returns. If you would like to contact the editors responsible for this article, please click here. Contact Us 1 Average Monthly Returns, - Source: Global Financial Data, Inc. Selling in May Hurts Source: Get a weekly roundup of our market insights.
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