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Chart of the Day / Sell in May and Watch your Profits Slip Away

Sell in May and Watch your Profits Slip Away

June 6, 2018

Investors may want to rethink their strategy of “Sell in May and Go Away.”

Such an antiquated idea has only been a good strategy for missing, instead of capturing some respectable wins.

The initial idea was that you should sell your stocks in May, and buy back in November.

That’s because if you look back over most of the last 90 years, two of the three worst trading months come in May and September, while three of the best months have come in December, January and April of each year. We also have to consider that October was a notorious month for massive stock market declines, including the crashes of 1929, 1987 and 2008.

While the exact origins of the phrase are a bit murky, says Reuters, stocks had underperformed in the six-month period starting in May, which coincides with vacation for many traders between the Memorial Day and Labor Day holidays.

Yet, over the last few years, had you sold in May, you would have missed out on some incredible wins. In fact, according to USA Today, you would have missed a 4.8% move higher in the Dow Jones Industrials in 2013, a 4.9% move higher in 2014, a 2.1% jump in 2016 and an 11.6% return in 2017. In 2015, the Dow did lose about 1%.

In 2018, the old adage was off to another lousy start by June.

In fact, between May and June 2018, the Dow had already jumped from 23,780 to 23,000.

Granted, it may be tempting to try and time the market, but adopting short-term seasonal thinking such as this doesn’t work so well. You’re much better off just holding and not worrying about what happens on a month-to-month basis.

Perhaps the new saying should be, “Sell in May and watch your profits go away.”