Table of Сontents
- Meaning Of ‘Sell In May And Go Away
- ‘Sell And Go Away In May’ Statistics
- Stock Market Summer Slump
- ‘Buy In October And Sell In May’ Strategy
- Alternative Trends To Follow
- Is ‘Sell In May’ A Good Strategy?
- FAQ
An investment proverb that advocates selling equities before the summer months is “sell in May and go away.” However, why would a shareholder sell at this time of year? Is this relevant in any way? Continue reading to discover the significance and background of the notion of selling in May.
Meaning Of ‘Sell In May And Go Away
According to the investing maxim “Sell in May and Go Away,” an investor can increase yearly profits by selling equities in May and delaying reinvestment until November. The proverb alludes to seasonal variations in stock market performance, with summer typically averaging lower returns than other seasons.
The Wall Street Crash of 1929 and Black Monday in 1987, two of the largest stock market catastrophes in history that took place in October, are at the heart of the adage’s history. Since then, stock market returns from May through October have often been lower on average than those from November through April.
‘Sell And Go Away In May’ Statistics
Investors look for patterns, and one such pattern is the identification of seasonal trends. There are data and trends that suggest selling in May, much like other well-known performance patterns and theories like the Halloween Indicator, the Santa Claus Rally, and the Presidential Election Cycle Theory.
Statistics from “Sell in May and Go Away” include:
- October had the three worst trading days in stock market history, two of which happened during the crash of 1929 and the other on Black Monday in 1987.
- Between 1990 and 2022, the S&P 500 returned an average of 2% from May through October and 7% from November through April.
- According to a 1998 research published on SSRN, from 1970 to 1998, 36 out of 37 established and developing market economies followed the selling in May and stayed away until the October rule.
- According to a Financial Analysts Journal article from 2013, selling in May continued to occur between 1998 and 2012.
- It is especially noteworthy in light of the rapid trend reversal in 2020, when the price of the S&P 500 index increased by 46 percent from March 23 to November 1, 2020, that the period from 2013 to the present has not been as steady.
Stock Market Summer Slump
The term “summer slump” in the stock market describes a seasonal fall in trading activity over the course of the summer, which can occasionally result in a low-volume, low-return situation. The “sell in May and go away” adage, which predicts lower average returns for equities between May 1 and October 31, compared to November 1 through April 30, is consistent with this seasonal tendency.
‘Buy In October And Sell In May’ Strategy
The Halloween Indicator, a substitute and related tactic to “sell in May and go away,” advises investors to return to the stock market at the end of October, which falls on Halloween. The investor would sell the equities on May 1 after holding them through April to complete the cycle.
Alternative Trends To Follow
Investors would be prudent to avoid using seasonal patterns to time their stock trades because they are unpredictable. Investors would be wise to base their investing selections on their personal investment goals and risk tolerance rather than anticipating that history would repeat itself.
For instance, a long-term investor looking to accumulate money for a retirement date that is more than 10 years away would be sensible to consider the historical average stock market return of about 10%. A short-term investor, on the other hand, may utilize a swing trading technique to capture a portion of an anticipated price shift within a few days or weeks as opposed to bigger returns over longer time frames. These two are only a few
Is ‘Sell In May’ A Good Strategy?
Although the “sell in May” approach has occasionally been successful, it is typically not a prudent course of action, particularly for investors with a long-term time horizon. Long-term investors have a proverb that goes, “Time in the market beats timing the market.” This is due to the fact that some of the biggest one-day increases in stock prices occur after the biggest drops.
