We have all heard the expression 'Sell in May and Go Away' but what is it and should we act on it?
According to Investopedia - this is a trading adage that warns investors to trade their stock holdings in May to avoid a seasonal decline in equity markets.
When exactly in May do I sell and when do I buy back in?
Nobody really knows how to time this. This is why I never sector invest or base my decisions on the seasons in the sun or visit witch doctors with rattles to tell me when to sell stocks or buy them. I don't use seasonality as an investment tool or try and time the market in any way.
Does it Work?
The stats don't lie, the market has actually advanced 57% of the time in May dating back to 1928 according to Merrill Lynch. It has only declined 0.06% of the time.
If you exit the market in May you would be actually missing out on the best period for stock gains which has been the June-August period. Stocks have risen 63% of the time for a gain of 2.97% during these three months.
Since 1968 the TSX has averaged an 8% gain (dividends included) from November-April but only a paltry 1.5% from May-October. It's not just the TSX but it also affects most international markets.
September is actually the worst month of all posting losses 54% of the time according to Wealth Professional.
Since 1968 the TSX has averaged an 8% gain (dividends included) from November-April but only a paltry 1.5% from May-October. It's not just the TSX but it also affects most international markets.
September is actually the worst month of all posting losses 54% of the time according to Wealth Professional.
You either believe in seasonality or you don't. I am a buy and hold investor. When I've made a mistake I just wait for an up market to sell my losers and buy back something of better quality and hold that long term.
We have many seasonal investing professionals here in Canada that promote this strategy and are very successful at it. It is best left to active portfolio managers and not small time retail guys and gals like us. It's just too complicated.
A recent study conducted by Don Vialoux over at Equity Clock concluded that the ideal sell date to be May 5 and the buy back in date to be October 27.
A recent study conducted by Don Vialoux over at Equity Clock concluded that the ideal sell date to be May 5 and the buy back in date to be October 27.
Buy and Hold
I am more a John Keynes and Warren Buffett investor now. Select quality dividend paying companies and just ride out the peaks and troughs that the market hands out. Will the markets rise or fall during the time frame this year? The answer of course is yes it will.
I also don't like to incur unnecessary trading costs which would happen should I just sell my 14 stocks and buy them back later. That would be 28 transactions @ $9.99 a piece. Why bother? Some of these professionals on TV are just paid advertising for the wealth management firms they work for. Always seek independent advice if you need it to make a more informed deciion.
I also eschew typical Efficient Market Theory. I pick stocks. It's what makes me a speculator. It takes a lot of waiting and compounding to know when you're right. Over the course of time and with dividends growing you will win.
Most investors have a hard time sustaining paper losses and sell their portfolios at the exact wrong time. It would be nice to know what to do when bad things happen, problem is nobody knows anything.
In 2008 the market declined 41%. Can you take a loss like that when you need your money most? If you can't just get out of the market.
My Final Take
I don't want to sit on the market sidelines for 6 months of the year. I could never get the buy and sell date right. We all share a different investing horizon, risk tolerance and objectives for our money.
After the last crash in 2008 it took the average investor almost 4 years to recover their losses. That's a long time and something to really consider when becoming a buy and hold equity investor.
Thing is, nobody will achieve a 100% investing success rate. That's why I'm just trying to stay invested and buy and hold for the long term. Some other considerations to think about;
- the past does not mean anything for future stock returns
- sell in May is just one strategy
- always ask questions and stay informed about your stock picks
- select a few quality growing companies, I started with just 5
Will you Sell in May and go Away?
No comments:
Post a Comment