Sell in May and Go Away?

Sell in May and Go Away? Maybe Not This Year ...

May 7, 2019
Michael ListBy Michael List
Portfolio Manager

April showers bring May flowers ... and May flowers bring the time to sell stocks (or so the well-known adage goes): “Sell in May and go away.”

“Sell in May and Go Away” (Why the Adage Holds True)

Every year around this time, this market superstition pops back up, and just like the dandelions in my yard, this year is no different.  Perhaps it will be even more prevalent, given the strong market gains in the first four months of the year or the recent talk over trade concerns.  Where did this idea come from, and more importantly, is there any truth to it?

The investment saying above originated from an old English adage, “Sell in May and go away, and come on back on St. Leger's Day.” This phrase refers to a custom of aristocrats, merchants and bankers who would leave London to go out the countryside to escape the heat during the summer months. “St. Leger’s Day” refers to the St. Leger's Stakes, a thoroughbred horse race held in mid-September and the last leg of the British Triple Crown.

This saying has transferred into modern times as American investors and traders are likely to vacation between Memorial Day and Labor Day.  Who doesn’t like to take a summer getaway to rest and rejuvenate in the sun and fresh air?  Interestingly enough, even the data trend in the chart below seems to support this idea:

Chart Showing Higher S&P 500 Return between November and April

As noted above, returns tend to favor the November-April time period but the May-to-October time frame still remains positive overall.  It is important to note that historically speaking, October has had been a challenging month in the stock markets.  Notable events such as Black Thursday (Oct. 24, 1929), Black Monday (Oct. 19, 1987), and extended effects of the collapse of Lehman Brothers (Sept. - Oct. 2008) were all associated with panics in the stock market.  This phenomena is known as the “October Effect” and may appear as the title of one of our upcoming blog posts.

“Sell in May and Go Away” (Why the Strategy Doesn’t Always Work)

While the old adage “Sell in May and Go Away” sounds like a reasonable rule by which to adhere (excluding tax implications and trading costs), there are recent examples of why this doesn’t always work. In four of the last six years, the May-October time period has actually outperformed the November-April time period.  Furthermore, even if the returns of the market are lower during the summer months, they are still positive – translating to gains from your investment portfolio (gains you could miss out on if you ‘go away’).

In fact, we've referenced before that missing just 2 percent of the best trading days over the last 10 years turns a 300 percent price appreciation on the SPX into a flat decade. The market generally does not signal when those "best days" will happen, so being out of the market can be very costly. 

One of the foundations to our investment management process is developing a diversified portfolio and making adjustments based on the changing needs of our clients – not based on old market adages. 

Springtime brings with it April showers, May flowers, fresh air and renewed energy. It can also be a great reminder to dust off the to-do lists we put into hibernation during the long, cold Midwest winters. Contact us today to set up a spring meeting with your Wealth Management advisor, and reinvigorate your commitment to your current and future financial plans.

About the Author

Michael List, CFP®

Michael List is a Portfolio Manager, helping execute investment strategy, transactional execution and overall portfolio management for Security National Bank's Wealth Management Division. He has been a member of the SNB Wealth Management team since 2008.