Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

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