Should Investors sell in May and go away?
Every spring market pundits trot out the old investment ‘rule’ that investors should ‘sell in May and go away.’ Many investors choose to accept this received wisdom without taking the time to do a little research into actual seasonal market performance.
During the past 20 years, the S&P/TSX Composite Index has gained in 13 summer periods and declined in seven. On the US side, S&P 500 Index has gained in 12 summer periods and declined in eight.
The ‘sell in May and go away’ investment rule would be better stated along the following lines: if you choose to sell in May, markets may go down over the course of the summer or they may go up. Based on actual market performance over the past twenty years there is in fact a greater probability that they will go up rather than down.
So, choosing to ‘sell in May and go away’ is not an investment strategy, it’s a speculative bet: you could be right and win or you could be wrong and loose. But like gamblers, speculative investors believe that they can beat the odds.
This highlights an important point: too many investors assume that investing is in fact nothing more than speculative bet.
Warren Buffet: ‘The Stock Market is designed to transfer money from the Active to the Patient.’
All too often, investors are distracted by the day-to-day noise of the market. This noise comes in the form of news releases, sell-side analyst reports, quarterly earnings announcements and, more recently, television broadcasts. Successful investors focus on the longer-term and try to shut out the day-to-day market noise.
We believe that investors are better served by following our three-part value investing strategy. In our view it is the best way to reduce risk and volatility and earn consistent returns over time. Our diligent, patient and opportunistic approach has served our clients well, through good and bad markets:
- Appraise the intrinsic value of each company over a business cycle;
- Seek long-term growth of capital by investing in companies that we perceive to be mispriced;
- Utilize a margin of safety to promote return of capital…not just return on capital.
Why does our value investing approach work? The prices of well-established, high-quality stocks tend to rise over time as the companies create value for shareholders. We believe investors are better off ignoring the day-to-day noise of the market, including the call to ‘sell in May and go away.’
May 1, 2015 – Boston-based Dalbar Inc just released its Qualitative Analysis of Investor Behavior (QAIB) study, now in its 21st annual edition. It shows a wide gap between investment returns — the return of a benchmark index — and the much smaller returns that mutual fund investors actually captured. Read more here>> Bad Behavior Cost Mutual Fund Investors 8 Percentage Points in 2014: Dalbar
What is Successful Investing? Learn more here>>
Download Our Free Special Report – How to Hunt For Value Stocks. Michael Sprung will share with you 5 stocks set for long-term gains here>>
We believe successful investors must challenge the market consensus by maintaining an independent point of view.
The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.