Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Sell in May… Please Go Away

Stock-Markets / Seasonal Trends May 08, 2013 - 06:31 PM GMT

By: Investment_U

Stock-Markets

Joe Martinson writes: I firmly believe blindly jumping in and out of the market is a fool’s game. That’s why I dread the annual flood of articles preaching the virtues of “Sell in May and Go Away.”

I hardly have time to shower… let alone sell all of my stock positions. But the experts tell me sitting on my hands each May 1 costs me money.


The idea behind Sell in May is that the market typically takes a breather six months of each year. So according to the proponents, the way to strike it rich is to blindly exit the market at the end of May and jump back into stocks in October.

This scheme goes by several names: The Seasonal Switching Strategy, The Best Six Months and The Halloween Indicator. Whatever the name, the concept is simple: Only hold stocks during the period from October through April and go to cash the rest of the year.

Bad Timing
Last year, Ned Davis Research published a sensational chart going back to 1950 that showed the difference between holding the S&P 500 during the hot half of the year compared to holding it during the dog days when the market typically slows.

The pumpkin lovers who load up each October then go to cash and stuff it under the mattress six months later enjoyed a 7,453% increase in price over a 62 year period – an annualized gain of 11.3.

The May Day crowd, who did the opposite, wasn’t as fortunate. Their strategy earned a mere 3% over the same period.

The chart made me feel like I was missing out. I had to ask myself… was it time to switch to seasonal investing?

What the chart didn’t show, though, is that merely holding the S&P 500 during the same period (and not selling) did better than an in-and-out strategy. Better yet, the buy-and-hold types avoided all those short-term capital gains tax the in-and-outers had to pony up each year.

Furthermore, these studies ignored dividends.

Why look at stock appreciation only? That’s like buying a house to rent then only look at the change in the price of the house as your return. Doesn’t the rent count as something?

Last year Alex Dumortier, a Princeton-educated economist, decided to see what seasonal investing looks like when dividends are factored into the equation. He looked at the annualized return of the S&P 500 including dividends from 1926 to 2012.

The results were interesting. When an investor sells in May then buys back in October the return was 8.4%.

On the other hand if he buys in May and sells in October the return is a surprising 5.1%, far more than the flat-line results that Ned Davis’ sans-dividend results show.

But the real shocker was the fact that a buy-and-never-sell strategy clocked in with a gain of 10%. This demonstrates that reinvesting dividends is a fantastic way to harness the power of compounding.

It bothers me that Ned Davis went back to the ’50s and Alex’s research went went back to 1926. It’s an apples-to-oranges comparison.

Custom Research
That’s why I asked Alex if his findings changed with shorter time horizons. Perhaps the shorter holding periods of most portfolios in the last decade skewed the results.

Per my request, he performed the calculations over the last 10-, 20- and 30-year periods. Alex concedes that the findings did change over shorter holding periods.

As you can see, holding time affects the outcome. And I’ll admit recent history favors a sell-in-May strategy. Perhaps something has changed in recent years that favor selling in May over a buy-and-hold strategy (an idea Matthew Carr expands on in the next issue of The Oxford Club Communiqué). Or maybe the events of the last five years have temporally skewed the data.

I asked Alex how he explains that October through May beats May through October, but buy-and-hold is best over the long run.

His reply was straightforward.

“It may well be that there is a seasonal component to stock returns that corresponds to a certain natural rhythm in our economic lives,” he said. “People tend to go on vacation during the summer months, for example. August, in particular, is very slow across many industries.”

There you have it… with the numbers to back it up.

Sell-in-May could be a good strategy for day traders, but those with a longer-term view should think twice before jumping in and out of the market. In the long run, sitting on your hands may be good for your wallet.

Good investing,

Joe

Editor’s Note: A lot of you are probably asking the same questions. Who’s Joe Martinson? And what in the world is an Oxford Club Member Advocate?

In case you weren’t aware, Investment U is published by a savvy group of investors known as the The Oxford Club. There are more than 60,000 Members spread across the globe. Joe’s role as a Member Advocate is to ensure Members understand the very best ways to take advantage of the opportunities and connections afforded to them by The Oxford Club.

Joe plays a very active role in the Club… and often, that includes sending Investment U readers his latest thoughts and research.

Source: http://www.investmentu.com/2013/May/sell-in-may-please-go-away.html

http://www.investmentu.com

Copyright © 1999 - 2011 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in