Weekend Reading: As The Saying Goes

May 10, 2021 | Andrew Dunn


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Hi everybody,

          “Sell in May and go away”…. you’ve likely heard this before, and it gets dragged out around this time each year by a least a few talking heads. With many stock, commodity, real estate and other markets at or near all-time highs we can perhaps expect to hear it more often this year, but is the “Sell In May” saying real investment wisdom or just a catchy rhyme with no real evidence to back it up? Matt Carthy, a portfolio analyst with RBC Global Asset Management, did a little digging to find out.

          The sell in May strategy is what is known as a seasonal strategy. The idea behind it is that you should sell in May and not buy back until Oct/Nov because a large portion of market participants go on summer vacation during this period. That supposedly results in lower trading volume, and therefor lower liquidity and higher volatility, which some (not I) think of as risk. No matter how you define risk or what your primary concerns are about the period between May and November, the data seems to suggest that you can put them to rest…along with the idea that you should consider selling in May to be any sort of informed strategy on how to invest in the markets.

          The chart below shows the S&P 500 performance during the May-Oct period for each year over the past 20 years. Clearly, this chart does not support a “Sell In May” philosophy.

            Matt analyzes this data a little further. Since 2000 the US stock market has posted positive returns 76% of the time from May to October. This means an investor was three times more likely to forgo positive returns by selling in May than they were to avoid any market losses. Of the years with the negative performance during that period they are almost exclusively explained by the Global Financial Crisis and the Tech Bubble, both events that were not seasonal, not due to traders taking vacation, and which extended beyond this May-Oct time period. Overall, the median return during the summer months is 4.1% and the market has posted positive returns for 9 straight summers.

          This is not to say that you cannot have a downturn during the summer, just that the summer is not a reliable cause of a downturn. Perhaps the saying should be “don’t be a bummer, hold through the summer” or “the data says its ok, keep holding past May”… the again perhaps not. What is true is that a catchy rhyme is not a replacement for time…. In the market.

…So close…

Have a great weekend everybody!

-Andrew