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Why Financial Press Still Do Not Understand ‘Sell-In-May’

  • Written by Syndicated Publisher No Comments Comments
    June 10, 2014

    The market was up for the month of May, so Sell in May has failed as a strategy.

    At least that’s what you would think from the many articles in the financial press. Do they spend even a few minutes checking their facts?

    For instance, a current article in a prominent financial publication says, “Sell in May has its roots in studies that show historical out-performance in the November-April period. Unfortunately, seasonal strategies can be very dangerous because, even though they might work well on a long-term basis, there’s no guarantee they will work every year.”

    Huh? Danger? That would imply losses. Where is the “danger” in being in cash if the market moves higher? There is no loss, just smaller short-term gains. For instance, my own Seasonal Timing Strategy variation of Sell in May missed the market’s further gain during the summer months last year. But it was still up 18.7% for the year. And though, it underperforms in  individual years, over the last 15 years it gained 271%, which is triple the 94% gain of the S&P 500, and 85% gain of the Nasdaq, including dividends.

    There is absolutely no strategy that over-performs every individual year. None. But then, isn’t investing all about long-term wealth-building?

    However, if you want to talk about a strategy where the word danger fits, try buy & hold.

    Over those same 15 years, buy & hold not only under-performed in some years, but produced devastating losses, plunges of up to 50% within some years for the S&P 500. Three straight down years, 2000, 2001, 2002; a loss of 36% in 2008. Our STS? Only two down years out of the 15, with the worst down year 4.2% (in 2009).

    The article goes on to say, “In fact, this strategy [Sell in May] would appear to be a loser right now, since the S&P 500 is up about 1.5% in May.”

    A strategy that is a six-month strategy is a loser because it is down in its first month? Does that mean buy & hold proves itself to be a loser every time the market is down for a month?

    The article then says, “The adage is rather vague. When  exactly in May should we sell, and where are we supposed to go? Are we supposed to invest in bonds rather than stocks during May-October?”

    He is referring to the basic Sell in May strategy, not my STS (which in some years has triggered its exit as late as late June).

    He should have at least googled ‘Sell in May’. Every study or description of Sell in May I have seen, dozens of them going back to the 1970’s, clearly states  the exit day is May 1, the re-entry day is November 1, and clearly states the results are based on holding cash during the market’s unfavorable season.

    As Jonathan Krinsky, chief market technician at MKM Partners, is quoted on MarketWatch this morning as saying, “Sell in May doesn’t necessarily imply that May is supposed to be a bad month, only that May begins the weakest six-month period of the year. June is actually the worst single month on average by a wide margin.” 

    To read my weekend newspaper column click here:   Bull Market Continues, But Will Cash Be Summertime King-?

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

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