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Does "sell in May and go away" really work? It sure does, Eddy Elfenbein writes after crunching...
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Thursday, April 12, 2012, 12:24 PM ETDoes "sell in May and go away" really work? It sure does, Eddy Elfenbein writes after crunching numbers back to 1896. Historically, the Dow hits a peak on May 6 and pulls back an average of 1.33% by May 25; by Oct. 27, the Dow has advanced just 0.34% from May 6. It means the market is nearly flat for a third of the year; for the rest of the year, the market gains an average 7.5%.
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This is from a previous post on SA by a commenter who thought that the president would push the market up during the election year to get elected. Our research on the topic found the following data.
We said:
"It appears that the data points to the just the opposite of what you've suggested.
"Interestingly, had you bought stocks after Oct/Nov in election years since 1972, you'd have above average gains on a percentage basis as compared to the S&P 500. Additionally, had you sold stocks in April/May of the election year and bought in Oct/Nov you would have avoided most of the largest stock market declines for that election year.
"Only 1984 and 1988 were exceptions to this rule. In '84 and '88, the market was higher in Oct/Nov than it was in April/May.
"This suggests that whether is it a republican or democrat in the oval office, the markets will swoon and create great buying opportunities once the uncertainty of the election has passed."
Comment on SA can be found here: http://seekingalpha.co...
Regards
Now, if we compound that strategy for ten years that means all those "dumb" folks, not "selling in May and going away," will average compounded returns 31% higher than their clever counterparts.
It wont make much sense if you are long term investor and hate to sell anything for the small movement in the market.
I am going to raise at-least 20% cash in my portfolio. Worst case I will lose potential profit that I could have made if market keeps going up. Having small amount of cash has not hurt me yet.......