Home About Archives RSS Feed

The Independent Investor: 'Sell in May and Go Away?'

By Bill Schmick
iBerkshires Columnist
If I hear one more person spout that line, I think I'll go nuts. Suddenly, because this cliche has worked for the past two years, it has become gospel to believe it will happen again this year. Investors should be wary.

Back in July 2008, I wrote in "Myths of the Market":

"Sell in May and Go Away," is one often quoted saying that implies that stock market returns are higher in the November-April period than in the May-October months. After 27 years experience in global markets, I tend to agree. My belief is backed up by multiple studies that indicate that in 36 out of 37 developed and emerging markets this indicator works the majority of the time. Although no one can provide one single cause for this, I believe it has something to do with summer vacations, especially in Europe, where the effect has been noticeable since 1694."
 
As a contrarian, when everyone is expecting the same thing, (in this case, a sell-off in the markets lasting into the fall), I tend to lean the other way. There certainly are plenty of good reasons to be concerned that this third year will be the charm. Questions over QE3, the ongoing Euro crisis, a slowdown in China, an incredible first quarter rally in stocks—all of these would indicate we need a correction or at least a healthy pull back.

The most convenient thing for all of us would be to cash in our chips, get to the sidelines and enjoy our summer. If you had done so in 2010, you would have missed a meager 1 percent gain in the markets between April 30 and Oct. 31. In 2011, you would have dodged a 6.7 percent slump in the averages. But markets usually do what is most inconvenient for the greatest number of investors.

A recent report from Ned Davis Research pointed out that the Selling May strategy doesn't work nearly as well when it occurs in a presidential election year. They looked at every presidential election since 1900. Investors on average would have missed a hefty 4.4 percent gain as measured by the Dow Jones Industrial Average in those years by selling in May. If an incumbent wins, the gains are even higher (7.6 percent).

Now, before you reverse course and buy everything in sight, a word of caution is appropriate. The same study did show that, on average, a correction did occur during the second quarter of presidential election years. The duration of the pullback is what differs.

Usually, a summer rally occurs after the second quarter sell-off in an election year. When the incumbent party has lost the election, the summer rally fizzled out and the Dow made a new low in late October, followed by a weak year-end rally. When the incumbent won, the summer rally was stronger and the pullack in the fall was mild, followed by a strong gain into the end of the year.

The explanation for the differences in these presidential election-year markets comes down to uncertainty. That uncertainty is compounded when the economy has been weak, as it is now. Leadership in times like these is extremely important to market investors. Some would argue that the incumbent (the devil you know) is preferable to one you don't know, who may or may not, usher in successful policy changes. The presidential candidate's party affiliation did not appear to have any bearing on the results.

So the moral of this tale is that there may still be a sell-off between now and the end of June, but politics will have an inordinate influence on what happens this summer and fall.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Harrington Kicks Off Campaign For District Attorney
Williamstown Fire District Passes All Articles
College Notes: May 2018
Northern Berkshire United Way Celebrates Spirit of Caring and Celebration
Italian Community Pushes Back On Renaming Of Columbus Day
North Adams Happenings: May 23-29
You Can Still Gain Tax Benefits from Charitable Donations
Efforts to Create Rural Transportation Options Turn to Private Sector
Adams ZBA Reschedules Cumberland Farms Hearing
Pittsfield Councilors Told Trash Hauler Started Enforcement On Its Own

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (258)
Independent Investor (352)
Archives:
May 2018 (5)
May 2017 (2)
April 2018 (7)
March 2018 (6)
February 2018 (7)
January 2018 (7)
December 2017 (8)
November 2017 (5)
October 2017 (5)
September 2017 (5)
July 2017 (2)
June 2017 (8)
Tags:
Rally Pullback Euro Jobs Fiscal Cliff Wall Street Oil Federal Reserve Banks Stocks Energy Japan Housing Commodities Interest Rates Stimulus Taxes Crisis Selloff Bailout Metals Markets Economy Greece Debt Ceiling Europe Stock Market Recession Deficit Election Debt Europe Congress Currency Retirement
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: Markets Are Going Higher
The Independent Investor: Does Cash Mean Currencies?
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Independent Investor: Are Americans Saving Enough for Retirement?
@the Market: Stocks Look Ready to Reach New Highs
The Independent Investor: What's Up With Oil?
@theMarket: China Worries Dominate Markets
The Independent Investor: Financial Scams Targeted at Elderly Are Epidemic
@theMarket: Peak Earnings Versus the Yield Curve
The Independent Investor: The Opioid Effect
@theMarket: Earnings Up; Stocks, Not So Much
The Independent Investor: Why the Tax Cuts Are Unpopular Among Americans
The Independent Investor: The Facebook Fallacy