In honor of St. Leger’s Day on September 15, we wanted to do a little nerdy throwback to the old adage, “Sell in May, go away, and come back on St. Leger’s Day.”
This saying has been around for centuries. But what does it mean? Where does it come from? And is it actually wise investment advice? Read on to find out!
What Does “Sell In May And Go Away” Mean?
“Sell in May and go away” is a trading strategy that’s been around for centuries. You essentially sell all your stocks in May when the market historically underperforms. Then, you buy them again in October or November when the stock market starts to tick back up.
The thought is — by selling your investments in May — you avoid the seasonal declines of the stock market. It’s the complete opposite of the dearly beloved buy-and-hold strategy.
“Sell In May And Go Away” Origins
Believe it or not, this saying didn’t originate on Wall Street. Its roots go way back to London’s financial district when aristocrats, bankers, and merchants would sell all their stocks in May, escape the city heat for the summer, then return just in time for the annual St. Leger’s Day Stakes — one of London’s great-renowned horse races.
The phrase was originally “Sell in May and go away, and come on back on St. Leger’s Day,” but over the decades it’s been shortened to, “Sell in May and go away.”
Does “Sell In May And Go Away” Work?
Turns out, this old saying holds some truth. Stocks have statistically performed better from early winter to early spring. Since 1950, the Dow Jones Industrial Average has seen an average 7.5% return from November to April versus a 0.3% return from May to October.
There are a couple of reasons why this trend may happen in the cooler months:
- Seasonal spending. Some of the biggest shopping holidays happen from October to April, including Halloween, Christmas, New Years, Valentine’s Day, Black Friday, and Cyber Monday.
- Year-end bonuses & tax refunds. There’s more money moving through the economy as people get year-end bonuses around December, then tax refunds from January to April.
There may also be an explanation as to why there’s a historical downtrend from May to October. Same as those aristocrats in London, many people still use the summer months to go on holiday, spend more time with family, and relax.
Is “Sell In May” Still Good Advice For Investors?
The whole “sell in May, go away, come back on St. Leger’s Day” strategy seems cut and dry, but we all know the stock market isn’t that simple. This strategy assumes that the market will always underperform during the summer months, and that’s usually not the case. A dip in May doesn’t always mean there will be a dip in June and July. It could mean quite the opposite.
It’s also worth noting that this year poses a unique set of circumstances, given COVID-19. Because so many people have, quite literally, been “away” from work this Spring, the old adage acutely reflects what’s been happening in our global economy.
Sell In May And Go Away Statistics
If we look back at the FTSE or the Dow Jones Industrial Average starting in 1950, there were historically lower returns from May to October. But since 2013, history suggests this may no longer be the case — and those who pull out of the market in May might miss out on significant gains through October.
This table breaks down the average return of the S&P 500 over a 10-year period. For seven of the past eight years, the stock market has seen positive gains from May to October:
|S&P 500 Index Returns (May to October)|
|Year||Sell In May Return|
Source: LPL Research, FactSet 4/28/2020 (1950 – Current)
What do these numbers mean? “Sell in May and go away” may not be sound advice after all. And you may see higher returns if you leave your portfolio alone — especially after you factor in trading fees, short-term capital gains taxes, and the frustrations that come with trying to time the market.
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