Sell In May: Further Reflections

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Includes: AAPL, CELG, GMCR, MNST, TER
by: Josef Friedman

There was a comment on my last article, criticizing the lack of history which only went back to 2003. In this iteration, I've doubled the time period and went back to 1996.

This is my third article dealing with "Sell in May" versus "Buy and Hold." The first article had a bug, which did not however impact the overall message. In the comments to that article I mention that after correcting this, a selection of Russell 2000 stocks showed an average 170% gain from 2003 with a Sell in May strategy versus only a 49% gain with a Buy and Hold.

The security universe for this article was picked by selecting U.S. stocks with an average daily volume of at least 2 million shares and priced above $10. The number of selected stocks was over 500. Eliminating stocks without price history from 11/1/1996 reduced the number to 320.

A feature was added to simulate Buy in May and Sell in November.

It is worth noting that a list is created in the present. Stocks that existed in the past will not be on the list unless they exist now (with the associated high volume). The effect of this is probably to wind up with better performance than one might expect from a list created in the past.

Once again certain stocks skewed the results -- at least in the opposite direction that I wanted to go. Apple (NASDAQ:AAPL), Monster Beverage (NASDAQ:MNST), Green Mountain Coffee Roasters (NASDAQ:GMCR), and Celgene (NASDAQ:CELG). I've included totals with them included and excluded.

It seems that the arguments to remove these stocks are stronger than the ones for leaving them in. At the very least, MNST and GMCR were penny stocks at the beginning of this period making them difficult to select.

There has been some talk in other articles about combining Sell in May with buying something else like Treasuries, Gold, etc. CELG was a very strong performer with Buy in May/Sell in November.

The results from November 1996:

  • Average Number of Positive Nov-May Trading Periods - 11 (out of 16)
  • Average Number of Positive May-Nov Trading Periods - 8 (out of 15)
  • Fewest Number of Positive Nov-May Trading Periods - 7 (of 16)
  • Fewest Number of Positive May-Nov Trading Periods - 3 (of 15)
  • Buy and Hold Average Gain - 888% (inc MNST,GMCR,AAPL, and CELG)
  • Buy and Hold Average Gain - 492% (without MNST, etc)
  • Sell in May Average Gain - 664%
  • Buy in May Average Gain - 33% inc MNST, etc 20% without
  • Number of stocks with Buy and Hold Loss - 18
  • Number of stocks with Sell in May Loss - 11
  • Number of stocks with Buy in May Loss - 178
  • Number of Sell in May stocks with a gain of at least 1000% - 69
  • Number of Buy and Hold stocks with a gain of at least 1000% - 35 (39 including MNST, etc)

Buy and Hold beats Sell in May, if MNST, GMCR, AAPL and CELG) are included, if they are removed Sell in May does better. Overall market performance from November to May is clearly better than May to September.

Let's look at Teradyne Imc (NYSE:TER) which was the second best performing Sell in May stock.

BuyD Buy Sell SellD Shares Buy Amt Sell Amt P/L
11/01/96 8.19 16.44 05/01/97 122100 1000000 2007326 1007326
10/31/97 18.72 18.41 05/01/98 107229 2007326 1974085 -33241
10/30/98 16.25 23.59 04/30/99 121482 1974085 2865764 891679
11/01/99 38.06 109.31 05/01/00 75296 2865764 8230601 5364837
11/01/00 31.00 38.25 05/01/01 265503 8230601 10155500 1924899
11/01/01 25.00 33.72 05/01/02 406220 10155500 13697738 3542238
11/01/02 12.65 11.70 05/01/03 1082825 13697738 12669054 -1028684
10/31/03 22.78 20.38 04/30/04 556148 12669054 11334299 -1334755
11/01/04 16.80 11.02 04/29/05 674661 11334299 7434760 -3899539
11/01/05 13.49 16.65 05/01/06 551131 7434760 9176335 1741575
11/01/06 13.64 17.40 05/01/07 672752 9176335 11705882 2529547
11/01/07 12.09 13.94 05/01/08 968228 11705882 13497105 1791223
10/31/08 5.10 6.29 05/01/09 2646491 13497105 16646430 3149325
10/30/09 8.37 12.23 04/30/10 1988821 16646430 24323278 7676848
11/01/10 11.24 16.10 04/29/11 2163993 24323278 34840283 10517005
11/01/11 13.64 17.21 05/01/12 2554273 34840283 43959037 9118754
Click to enlarge
  • Buy and Hold makes 110% from 11/1/96 to 5/1/12.
  • 17.21 (5/1/12 Sell price - 8.19 (11/1/96 Buy price) = 9.02
  • 9.02 / 8.19 * 100 = 110%

This is a positive return (where the $1 million initial investment would be worth over $2 million, but $43 million in the 11/1/11 Sell amount is better.

Look at 11/1/99 where the stock was sold for 109.31 and bought back the next year for 31. Have to feel sorry for a Buy and Hold person dealing with this.

Contrast this with the Buy in May concept applied to TER.

BuyD Buy Sell SellD Shares Buy Amt Sell Amt P/L
05/01/97 16.44 18.72 10/31/97 60827 1000000 1138686 138686
05/01/98 18.41 16.25 10/30/98 61851 1138686 1005087 -133599
04/30/99 23.59 38.06 11/01/99 42606 1005087 1621603 616516
05/01/00 109.31 31.00 11/01/00 14835 1621603 459882 -1161721
05/01/01 38.25 25.00 11/01/01 12023 459882 300576 -159306
05/01/02 33.72 12.65 11/01/02 8914 300576 112761 -187815
05/01/03 11.70 22.78 10/31/03 9638 112761 219547 106786
04/30/04 20.38 16.80 11/01/04 10773 219547 180981 -38566
04/29/05 11.02 13.49 11/01/05 16423 180981 221546 40565
05/01/06 16.65 13.64 11/01/06 13306 221546 181495 -40051
05/01/07 17.40 12.09 11/01/07 10431 181495 126108 -55387
05/01/08 13.94 5.10 10/31/08 9046 126108 46137 -79971
05/01/09 6.29 8.37 10/30/09 7335 46137 61394 15257
04/30/10 12.23 11.24 11/01/10 5020 61394 56424 -4970
04/29/11 16.10 13.64 11/01/11 3505 56424 47803 -8621
Click to enlarge

The $1 million initial investment in 1997 has been reduced to $48K in 2011. Buy in May and Sell in November doesn't work very well generally. CELG as mentioned above was one exception.

My impression is that the Sell in May concept holds up as well in the 1995-2012 period as it did from 2003-2012. Potential returns in the May to November period do not seem to justify the extra risk.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.