E The Hard Numbers Behind Selling In May

Followers of my Trade Alert service have watched me shrink my book down to only two positions, the smallest of the year.

That’s because I am a big fan of buying straw hats in the dead of winter and umbrellas in the sizzling heat of the summer. I even load up on Christmas ornaments every January when they go on sale for ten cents on the dollar. There is a method to my madness.

If I had a nickel for every time I heard the term “Sell in May and go away,” I could retire.

Oops, I already am retired!

In any case, I thought I would dig out the hard numbers and see how true this old trading adage is.

It turns out that it is far more powerful than I imagined. According to the data in the Stock Trader’s Almanac, $10,000 invested at the beginning of May and sold at the end of October every year since 1950 would be showing a loss today.

Amazingly, $10,000 invested on every November 1 and sold at the end of April would today be worth $702,000, giving you a compound annual return of 7.10%.

This is despite the fact that the Dow Average rocketed from $409 to $18,300 during the same time period, a gain of 44.74 times!

My friends at the research house, Dorsey, Wright & Associates, (
click here) have parsed the data even further.

Since 2000, the Dow has managed a feeble return of only 4%, while the long winter/short summer strategy generated a stunning 64%.

Of the 62 years under study, the market was down in 25 May-October periods, but negative in only 13 of the November-April periods, and down only three times in the last 20 years!

There have been just three times when the “good 6 months” have lost more than 10% (1969, 1973 and 2008), but with the “bad six month” time period there have been 11 losing efforts of 10% or more.

Being a long time student of the American, and indeed, the global economy, I have long had a theory behind the regularity of this cycle.

It’s enough to base a pagan religion around, like the once practicing Druids at Stonehenge.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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