Sell in May and go away, and come back on St. Leger’s Day.
Most Liberty Through Wealth readers have probably heard that investing adage. Or at least the first half of it. The question today is, is it still relevant?
The saying is centuries old. And for those who are unfamiliar, St. Leger Day is the date of a classic horse race in England that’s run every September. London bankers and merchants would sell their shares before summer arrived and retire to the country. In late September (after the big race), they’d return to the city and the stock market.
The analog in modern times is Wall Street traders trimming their positions in late May before heading to the Hamptons (or better, the Jersey Shore) for the summer.
And over the years this saying has held up well enough…
In the 72 years from 1950 to 2022, the average gain in the Dow from November 1 through the end of April has been 7.3%. That plummets to 0.8% for the May 1 to October 31 period.
That may not seem too dramatic of a difference, but if you compound that over seven decades it’s massive. Investing $10,000 in 1950 in the S&P 500 in just the May-October months would have resulted in a net gain of $3,300 by 2022. Investing the same amount in 1950 in just the November-April timeframe would have brought you about $977,000.
As The Stock Trader’s Almanac states, the “Best Six Months” strategy continues to be eye-popping.
So, indeed, why not cull some risk from your portfolio in May before summer doldrums, low volumes and uninspired trading take hold? And then return to a risk-on position when autumn breezes begin to blow, and the leaves start to turn.
(In the U.S. this trading idea has also come to be known as “The Halloween Strategy” – that is, start buying stocks again when you see jack-o’-lanterns.)
The Validity of This Trend
Such seasonal trading patterns have faded a bit, of course, due to cultural shifts and technology.
Few investors take the whole summer off these days. And you no longer need to be at a desk in downtown Manhattan to buy and sell stocks. Today, most people can trade on their mobile phones.
As a result, while April remains very kind to investors, July has switched from bearish to bullish over the last two decades.
Still, markets have continued to stagnate or suffer in May, June, August and September. You can see how the market has fared by month in the chart below…
It’s clear that last year was somewhat typical. The market peaked in late July and then dropped by more than 10% through the end of October. It turned up again just as my wife and I were putting out our Halloween decorations.
So “sell in May” still holds some wisdom for us. Certainly June, August and September look like good months for investors to keep their money out of equities. And Halloween remains an excellent opportunity to collect both candy and new shares.
What About Long-Term Investors?
If you’re in the market for the long–term – as most smart investors are (unless they are very near retirement) – seasonal patterns mean a lot less.
And with so many transformative technologies – from artificial intelligence and robotics to genomics and edge computing – now surfacing in the economy and the stock market, savvy investors will want to be invested and stay invested in companies that provide or employ them.
(Alexander Green and I detailed these “Eight Megatrend’s for 2024 and Beyond” technologies and their enormous potential upside for investors in the January issue of The Oxford Communiqué.)
Perhaps a wise strategy is to reexamine your portfolio in early May, sell some of the positions that haven’t worked and put that money to use in assets that pay better. For example, the three-month Treasury right now yields 5.4%.
Better yet, put those funds into stocks associated with the megatrends I detailed above. Alex has been identifying these all year and adding stocks to our portfolio accordingly – and will continue to do so.
Those stocks are good for the long run and will weather any seasonal trading patterns.