For some reason, and maybe it’s just me, I’m hearing the saying “Sell in May and go away” a lot this month. It’s not that people don’t repeat the saying in May, it’s just that I’ve heard it a lot lately. The saying refers to investors that drop their positions for the summer and then return sometime in the fall (or late summer).
As an investor it’s good to have some general knowledge about season investing trends. Maybe you’re not going to build your investment strategy around some devised seasonal timing structure, but if might give you some guidance as to when to lighten or add to your portfolio when all else is equal.
As you can see from the chart below, if history is consistent investors should buy in September or October and ride out the rest of year into January. The problem is the chart is looking at averages, so you may get burnt…no guarantees.
I went ahead and created my own chart of annual movements in the S&P 500 from 2004-2010. As you will see, through those 6 years the idea of being able to buy low in September really hasn’t worked out. What you do see though is that the summer months appear to be pretty mushy. The fall and winter months seem to be pretty strong. In 2009 this obviously wasn’t the case because the market tanked…
The biggest take away from the discussion of seasonal investing is that it is helpful as a general guide to investing in the market, but I really don’t think it should be your guiding light. Again, this is ‘the market’ we’re talking about and not specific companies or industries. A company based on news or an industry based on its own seasonality might buck these historical snapshots. Above all else, macro economic news will drive the market up or down, if the news is significant.