Sell in May and Go Away?

It's that time of year again. As the old phrase claims, now that May is here, it's time to sell stocks and 'go away' as the stock market enters the period of the year which has supposedly been the weakest. Looking at the historical results, however, shows that the record of this indicator is mixed at best.

The chart below shows the average performance of the Dow Jones Industrial Average from May 1st through September 1st using various time frames. Depending on your window, the results vary widely. Over the last five years, the Summer months have been positive, with an average return of 3.2%. However, when we look back ten years, the average return over the same time period is a loss of 1.16%. If we look back 25 years, the average return jumps back up to 2.4%, and then over a fifty-year period it falls back down to 0.84%.

"Sell in May and go away" makes for a nice catch phrase, but it's not really an indicator to bank on.

click to enlarge

Comments

[Markingtime:]

Hi, this is a good adage to test. What would the results look like if you had compared the 1 May - 1 Sept period against the other four month periods in the year ... isn't that the real test? cheers Markymark

2008 Apr 30 02:49 PM

[buddywh:]

This article incorrectly states the months of May 1st through September 1st. It should use the period of May 1 through October 31st. I believe the outcome will be different.

2008 Apr 30 03:08 PM

[ItsJustMe:]

Six months is how I've always heard it as well. If you invested from Nov 1 to April 30th of each year and went to cash the other 6 months of the year, you would do significantly better than the overall market.

Don't know if that's worked the last 5 years or not but over the long-term I'm pretty certain it has....

2008 Apr 30 03:24 PM

[whidbey:]

Actually, this lore is likely to be confusing this year. We have too much that depends on making changes in the economy. When policy shifts are afoot there is no peace in the market. I feel Congress will not leave housing alone and by fall '08 we will have some rescue bills, if now laws, that will affect interest rates negatively. Beware it is a political year, no one is safe.

2008 Apr 30 03:27 PM

[globalmacro:]

You're definitely not safe, whidbey. The drivel I have just read is deeply troubling to say the least. Perhaps you should have be required to have a basic education before you're allowed to run around on the net posting this inane nonsense.

2008 Apr 30 03:35 PM

[Bespoke Bul...:]

Why do these two guys keep posting misguided "analysis"??? Pseudo-Statistical "analysis" can actually hurt people so please stop it.

2008 Apr 30 03:59 PM

[Zeon:]

They do it because Seeking Alpha publishes virtually anything.

2008 Apr 30 05:18 PM

[Voice of Re...:]

Heck, any day now some "analyst" will make a stock market forcast based on sun spot activity over the past 50 years. Maybe someone else will preach Elliott Wave Theory. Oh, oh, what about one of those black box software packages all over the financial channels, that are virtually guaranteed to make you rich?

Two words: SNAKE OIL. Bah humbug on all "theories", chart reading secrets, so-called experts and all the other crap heard here.

You want to get rich? Do your homework.

2008 Apr 30 05:34 PM

[Jason Tillberg:]

Yeah, it's a 6 month period that stocks typically suck starting May 1st.

The markets are now overbought, economy is getting terribly worse and I cannot believe the earnings forecasts for 2009! Can you believe, homebuilders are expected to make money in 2009?

Homework has been done. Upside potential very limited while downside from here is massive next 3 years out.

2008 Apr 30 10:03 PM

[Voice of Re...:]

People were saying the same thing in late 1982... just before the start of the greatest bull market ever. I didn't listen. I invested $3K and now 25 years later that's grown to over well lets just say $XXXXXX.

So where will you put your money the next three years, under your mattress, in a tin can planted in in he backyard or get a CD paying 1.8%? There's ALWAYS a bull market somewhere.

2008 Apr 30 10:51 PM

[fynney1:]

Voice of Reason: your pseudonym is appropriate! Three years from now, many (investors) will look back at this period as a great "If only" time. Ultimately, "homework" will prevail over speculation and luck!

2008 May 01 11:51 AM

[Voice of Re...:]

It being 5/1 I guess some of the boys didn't get the memo they were suppose to sell considering the market is up strong today. <snicker>

If only I would have bought more Master Card a few days ago. ;-)

A couple months ago the "experts" were suggesting a lot of people would sell a big portion of their MC since it had gone so high so fast and switch to Visa's IPO when it came out. It has been on fire the last couple days. Other "experts" were saying wait for Vista to come down, don't buy it on right after the IPO. The experts were WRONG as usual. Just wondering, what makes these jokers experts?

2008 May 01 05:20 PM

[flinflout:]

maybe in the olden days ( 1900-1950 or so) this "theory" held water
as the market was US centric, but now, "this ain't your gran-pappy's
stock market". Almost every co. has a global reach and there is
truely a lot of f---ing people out ther that need/want product and services right now. Hell, you can start a business on the net today and be international 10 seconds later! I'm buying!

2008 May 01 08:01 PM

[Chancer:]

Voice of Reason:

The lack of sun spots is predicting unusual "cooling" in future.

Does that mean a "cold" market vs. a "hot" market?

Maybe, I should write a book about it, and get rich. Ha!

2008 May 02 04:39 PM