You’ve heard the line before: “Sell in May and go away.” But is there actually any credence to it?
Bigger-picture: Not really.
Trading on “seasonality” is just another flavor of market timing. And market timing has a poor track record.
In Barron’s recently, Mark Hulbert asked: “So, How Did the Market Timers Do?” The answer was “badly.”
And the strategy has been a painful one for seasonal traders over the past 15 years.
However, while I’m not into investing on clever rhymes alone, it’s important to note that for many reasons — none of them related to historical trends — the market could get choppy this spring.
My worries include a China slowdown, top-line trouble this earnings season, and a generally sluggish U.S. economy tracking just 1.7% GDP growth, just to name a few. (Read my full list of warning signs here.)
Charles Sizemore, editor of the Sizemore Investment Letter, disagrees with me. He thinks that while things have gotten choppy, that is all about the consolidation we can expect over the next few months. The market will move mostly sideways, says Charles, not down from here in the short-term.
Thus, “sell in May” is only a good strategy if your stocks are overbought or if you have to move money around to make other investments. Be strategic, Charles says, not a slave to idioms and seasonality.
Check out the video for more details. And check out the following links for context, or share your own in the comments section below.
- Read my full list of warning signs, not related to timing but news. (The Slant)
- The “sell in May” pattern has worked recently, and might again in 2013. (MarketWatch)
- More on why the spring might see softness in the market. (24/7 Wall Street)
- Of course, while timing is tough, Barry Ritholtz says there’s a benefit to “risk analysis” in your strategy. (The Big Picture)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.