Seeking Alpha
Profile| Send Message|
( followers)  

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.

BuyDBuySellSellDSharesBuy AmtSell AmtP/L
11/01/968.1916.4405/01/97122100100000020073261007326
10/31/9718.7218.4105/01/9810722920073261974085-33241
10/30/9816.2523.5904/30/9912148219740852865764891679
11/01/9938.06109.3105/01/0075296286576482306015364837
11/01/0031.0038.2505/01/012655038230601101555001924899
11/01/0125.0033.7205/01/0240622010155500136977383542238
11/01/0212.6511.7005/01/0310828251369773812669054-1028684
10/31/0322.7820.3804/30/045561481266905411334299-1334755
11/01/0416.8011.0204/29/05674661113342997434760-3899539
11/01/0513.4916.6505/01/06551131743476091763351741575
11/01/0613.6417.4005/01/076727529176335117058822529547
11/01/0712.0913.9405/01/0896822811705882134971051791223
10/31/085.106.2905/01/09264649113497105166464303149325
10/30/098.3712.2304/30/10198882116646430243232787676848
11/01/1011.2416.1004/29/112163993243232783484028310517005
11/01/1113.6417.2105/01/12255427334840283439590379118754

  • 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.

BuyDBuySellSellDSharesBuy AmtSell AmtP/L
05/01/9716.4418.7210/31/976082710000001138686138686
05/01/9818.4116.2510/30/986185111386861005087-133599
04/30/9923.5938.0611/01/994260610050871621603616516
05/01/00109.3131.0011/01/00148351621603459882-1161721
05/01/0138.2525.0011/01/0112023459882300576-159306
05/01/0233.7212.6511/01/028914300576112761-187815
05/01/0311.7022.7810/31/039638112761219547106786
04/30/0420.3816.8011/01/0410773219547180981-38566
04/29/0511.0213.4911/01/051642318098122154640565
05/01/0616.6513.6411/01/0613306221546181495-40051
05/01/0717.4012.0911/01/0710431181495126108-55387
05/01/0813.945.1010/31/08904612610846137-79971
05/01/096.298.3710/30/097335461376139415257
04/30/1012.2311.2411/01/1050206139456424-4970
04/29/1116.1013.6411/01/1135055642447803-8621

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.

Source: Sell In May: Further Reflections