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It is their job to entertain. It is your job to ignore…
“Sell in May and Go Away.”
Perhaps the catchiest of all market sayings and one we hear repeated year after year. But how has it actually served investors over the years? Let’s take a look.
Since 1928, the S&P 500 returns from May through October have lagged the returns from November through April.
Case closed, then, sell your stocks at the end of April and buy back at the end of October?
Not so fast. Why not?
Because the returns from May through October are still positive, with the average May-October up 3.9% and the median up 5.3%. Needless to say, “staying away” from positive returns is not the best investment strategy.
Data Source for all charts/tables herein: Bloomberg, YCharts
At 71%, the odds of a positive May through October are only slightly below the odds of a positive return from November through April (73%).
Still not convinced that Sell in May is a bunk theory?
Below is a chart of $10,000 invested in 1928 with a “Sell in May” strategy versus buy and hold. If you sold each May, put the money under your mattress, and bought back at the end of each October, your $10,000 would grow to $2.2 million (6.1% annualized return) versus $33.2 million (9.4% annualized return) for buy and hold.
In the short run, the day, week or month in which you choose to buy stocks will invariably lead to different returns. This inherent randomness in markets will sometimes work in your favor and other times work against you. But at at the end of the day, it is just noise.
It is the media’s job to promote that noise as a source of entertainment. And it is the job of the long-term investor to ignore it. There is simply no evidence that a particular month is the best or worst time to invest.
The key to earning really large returns is investing long enough to experience the magic of compounding. Which is why a much more helpful saying than “Sell in May and Go Away” would be “Buy in May (and every other month) and Stay Invested.”
I won’t hold my breath waiting to see that in the headlines anytime soon.
Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts. He is the co-author of four award-winning research papers on market anomalies and investing. Charlie is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.
Charlie holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and also holds the Certified Public Accountant (CPA) certificate.
In 2017, Charlie was named the StockTwits Person of the Year. He has been named by Business Insider and MarketWatch as one of the top people to follow on Twitter and his work has been featured in Barron’s, Bloomberg, and the Wall Street Journal.
You can follow Charlie on twitter here.
Pension Partners, LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. For more information about Pension Partners please visit: https://adviserinfo.sec.gov/ and search for our firm name.
The information herein was obtained from various sources. Pension Partners does not guarantee the accuracy or completeness of such information provided by third parties. The information given is as of the date indicated and believed to be reliable. Pension Partners assumes no obligation to update this information, or to advise on further developments relating to it.
Past performance is not indicative nor a guarantee of future results.
This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
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