Sell in May and Go Away?

May was a poor month for stocks.  Many are suggesting that we should revisit the old adage, Sell in May and Go Away.

Of course, there are many Wall Street adages, what is your favorite?

As January goes, so goes the year.
Don't catch a falling knife
The Super Bowl indicator:  An AFC victory is bearish, and an NFC victory is bullish
As the first week of January goes, so goes the rest of the month, thus the rest of the year.
If Santa Claus should fail to call, Bears may come to Broad and Wall (if we don't see a Santa Claus rally in Dec, the market will decline in the coming year).

and of course, given the poor performance in the stock market over the last month, the most relevant one:
Sell in May and Go Away.

But when to come back?  Well, there's a second half to this one that most people don't know about.

It goes...

Sell in May and Go Away, and Don't Come Back Until St. Leger Day.

But what the heck does that mean?  If you are not a horse racing aficionado (and I'm not), St. Leger Day refers to St. Leger Stakes, a race of three year old colts and fillies (and no, I don't know what a fillie is, other than the wrong spelling for a professional Philadelphia baseball player).

The important thing to know is that it takes place in September.  When exactly, seems to vary.  Everything that I have read seems to indicate that it takes place in the middle of September, however, this year's race is scheduled for September 8 and 9.  My best guess is that is takes place on the second full weekend of September, normally putting it somewhere around the 12th to 14th, but because the first falls on a Friday, the second full weekend begins on the 8th.  I dunno, just making a guess.

Anyway, what does all this mean?  Well, according to the adage, you should sell your stocks in May (when in May, they don't say, so we'll assume the first of May), and get back in the market on St Leger Day.  For the purposes of analysis we'll assume St. Leger Stakes falls on the 10th every year.

I did a little research, which you can see on the attached spreadsheet.  I didn't pretty the spreadsheet up, so it's not too kind on the eyes.  My assumptions were as follows:

• Sell your stocks on the first of May, or if that day fell on a weekend or a holiday, on the prior trading day.
• Return to the market on September 10, or if that day fell on a weekend or a holiday, on the next trading day.
• I tracked the S&P 500, comparing the level you would have exited and re-entered
• YahooFinance provided data to 1969.

Here are the results.

• There were 26 years in which you missed out on a positive return during the period studied, and 11 years in which you successfully avoided a loss.
• This highest return that you missed out on was +18.35%.  The worst loss avoided was -24.92%.
• The average return during the period across all years was 1.07%.  The median return was 1.60%.
• 21 of the 37 years resulted in returns between -5% and +5%.

There are many old adages on Wall Street that are based on decades, even centuries old advice and tendencies in the market.  They all seem to hold a bit of truth, but are generally not sound advice taken at face value.  This one is intriguing, as it seems to predate Wall Street, itself, originating in Great Britain a couple of centuries ago.

Like all attempts at timing the market, the greatest risk is that you will miss out on great returns, and your portfolio will suffer over the long run.  This one actually seems to successfully pinpoint a period in the market that can be best described as lackluster.

Also interesting to point out is that during the grand bull market of the 80s and 90s, your average return during this period was 3.68%.  Positive, albeit not overwhelming.  However, your average return from 1969-1979 was -2.22%, and from 2000-2005 was -1.59%.  So, outside of the grand bull market of 1980-1999, this strategy would have worked.

Is it a good idea to sell in May and go away, and don't come back until St. Leger's Day?  Funny, I was ready to give you an emphatic NO!  But that was before I ran the numbers.  This period is historically a rather lackluster one.  However, history, as we all know, may not repeat, and you continue to run the risk of missing out on terrific gains.

And most importantly, read my disclaimer:  This is general advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio.  You, alone, are responsible for any losses or damages that may and will likely result from your financial decisions.

Comments

[thatedeguy]

A colt is a young male horse while a filly or fillie is a young female horse. A gelding would be a male horse who has been castrated. A stallion would be a male horse that is still "intact" and a Mare would be an adult female horse.

Oh, and I agree that trying to time the market in such ways is supremely silly. ;)

[Brett Claridge]

Hi When I click on the spreadsheet, a spreasheet does not appear just a link to text. Would you please send me a copy of the spreadsheet.

Thanks

Brett