If you sold out of the market this summer, you missed a 10% increase.
“Sell in May and go away” is an old Wall Street saying that suggests investors to sell their stocks during the summer to avoid a seasonal decline in the stock market. An investor selling their stocks in May would then buy stocks again at the end of the summer (some suggest November) because the summer time period shows significantly less growth in the market than the other times of the year. Or so the story goes.
Where did this “Sell in May and go away” advice originate? Not on Wall Street, but rather in London’s financial district. The original saying, “Sell in May and go away, come back on St. Leger’s Day” refers to a horse race. That’s right, a horse race.
The St. Leger Stakes is one of England’s greatest horse race and is run in late September. London traders would sell their shares, enjoy their summer, and return to the market after the St. Leger race.
But This Time It’s Different
What happened in 2018? Well, if you sold in May this year with the thought of returning to the market after Labor Day, you missed a lot. Let’s look at the performance of the S&P 500 for different time periods so far in 2018:
- If you were invested in the S&P 500 from January 1, 2018 through August 31, 2018, you would have enjoyed a healthy return of 8.52%
- If you were invested from January 1st through May 1st only, your S&P 500 return was -0.70%
- If you were invested from May 1st to August 31st only, your S&P 500 return was 9.57%
But Wasn’t 2017 Different?
One of the most dangerous phrases in all of investing is: “this time it’s different.” In fact, if you are discussing investments, the markets, or anything financial related and someone says this, don’t walk away, run. Look at how this “Sell in May and Go Away” idea worked in 2017:
- If you were invested in the S&P 500 from January 1, 2017 through August 31, 2017, you would have enjoyed a healthy return of 10.4%
- If you were invested from January 1, 2017 through May 1, 2017 only, your S&P 500 return was 6.68%
- If you were invested from May 1st to August 31st only, your S&P 500 return was 3.67%
Successful Long-Term Investing
The key to successful long-term investing, of course, lies in following wise strategies suited to your individual financial situation and goals. It is generally best not to rely on horse race legends that are not explained by actual market trends or economic analysis.
Instead, focus on the traditional, sensible factors that include assessment of the business cycles, changing economic conditions, and evaluation of your personal financial plan.
One of our primary roles is to help our clients stay focused on their objectives and tune out the short-term "noise" that distracts from profitable, long-term investing habits. We are here to help - please contact us with your questions and concerns.
Copyright © 2018 RSW Publishing. All rights reserved. Distributed by Financial Media Exchange.