May is only half over, but it’s more than time to call “sell in May and go away” a losing strategy.That’s not just because the market is on a pace to double its year-to-date returns this month.Instead it’s because market axioms and rules tend to be more about comfort than investing logic, and the comfortable path is the best one for most investors.The flaws don’t stop investors from considering it a real strategy.
The strategy is based on the historical results of the stock market from May through October, compared to outcome from the other six months of the year.The average return of 0.3% from May to October, compared with a 7.5% gain in the November-April time frame.Those results don’t include transaction costs and taxes on any profits which academics can avoid but investors can’t but they also show that the idea is less about dumping stocks to avoid summer-fall losses.
Mostly, trading volumes are lower during summer vacation months, and stocks tend to be more volatile at times when there is less liquidity in the market.But the entire idea involves thinking like a trader, where the slow summer months show fewer trends of any sort.
Traders like trends and selling in May for a trader is a track record of small gains, it’s not worth to be in the market for that half of the year.However, the public saw it as a statement that the market is a loser from May through November, helped along by the perception that many of the market’s worst days have come in October.
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