Sell in May and Go Away

“Sell in May and go away” is a well-known financial-world axiom, based on the historical under performance of some stocks in the six-month period commencing in May and ending in October, compared to the following six-month period from November to April. If a trader or investor follows the sell-in-May-and-go-away strategy, they would divest their entire equity holdings in May and invest again in November.

From 1950 to around 2013, the Dow Jones Industrial Average posted lower returns during the May to October period, compared with the November to April period. Looking at the Straits Times Index last year, the index peaked at around end April 2018 at 3577 points and then it fell all the way to below 3000 points in end Oct 2018. From then on, it started its ascent to 3400 levels today.

Performance of the Straits Times Index(STI) from May 2018 to May 2019

Why does this seasonality exist and why has it persisted? Perhaps this is induced by holidays and vacations people tend to take in the summer. I think that it has something to do with the fact that during this period, most companies would have held their AGM, published their annual reports and declared their dividends and investors might divest their holdings after collecting the dividends.

What does this mean for investors? While I was surprised at the evidence supporting this old adage, I am certainly not advocating selling your equity assets and sitting on cash for the next six months. Timing markets consistently is a difficult proposition. Doing your due diligence and investing more in when markets are down with a long term view is likely better advice.

Buy In May And Hold Till Grey.

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