Sell In May And Go Away?

Sell in May and go away is an old Wall Street saying that is the basis for a market-timing investment strategy which calls for you to sell your stock holdings right before summer and buy them back in late fall, or right before Memorial Day and right after Halloween.

Historically, the S&P 500 has performed better during the winter months than in the summer months. So, there is evidence that this strategy could work, but we are really Monday-morning quarterbacking here. In reality, you have to be very good at timing the market not once, but twice every year! You have to pick when to sell and then you have to pick when to buy back in. Plus, you have to consider your holdings’ short-term versus long-term gains and losses as well as the associated tax ramifications.

I don’t know of anyone or any firm that has been able to do this successfully for an extended period of time.

So, whenever I hear the “Sell in May and go away” adage, I like to think of another old Wall Street saying: Time in the market, not timing the market. This means relying on a strategy where you don’t try to guess when the market is at its lowest or highest point. Instead, you invest knowing that your timing is probably going to be off, but that eventually, investing in great companies with strong fundamentals matters more than the timing.

Now is when I roll out my favorite illustration to show why time in the market is better than timing the market for investors.

Picture the movement of the yo-yo as the short-term fluctuations of the stock market and the guy walking up the stairs as the long-term trend of the market. The market has its ups and downs, but over time, has consistently moved higher. This is a simple, but effective, way to illustrate why time in the market is better than timing the market.

Please comment or send an email if you have any questions. Have a great Memorial Day weekend!

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassemanagement.com