Sell in May and go away is an investment strategy for stocks based on a theory that the period from November to April has significantly stronger growth on average than the other months. Typically an investor would sell at the start of May and re-enter the market following the summer period. (Wikipedia)
Summer, when investment managers are thought to prefer being only holiday rather than going to work, is thought of as a bad period to hold equities. In this article I will review market data from the past few years in order to assess whether there is some truth in this idea. I will be using the DAX Index as reference and will test whether it makes sense to avoid investing in the summer.
2009
Between the end of May and mid-July the market fell 11 percent. From this bottom the market rallied 30 percent by the end of 2009.
2010
The market between May and September was choppy and it would not have made much difference whether investors decided to hold equities or cash during this period. However, from September till the end of December the market gained 13 percent.
2011
From the end of May up to the middle of August the DAX lost 30 percent of its value. This was caused by fears of contagion, concerns over France’s AAA rating, concerns over the slow economic growth in the US and its credit rating being downgraded.
The rest of the year was volatile. The market clawed back 16 percent by the end of December from the bottom in September.
2012
The Index between January and May was volatile, investors would not have made a return during this period. However, from June onwards the DAX gained 27 percent.
2013
Selling in end of May would have avoided a 7 percent ‘correction’ by mid-June. From this point onwards the DAX gained 24 percent.
2014
In 2014, between the end of May and the start of August the market fell 9 percent. However, the market reached an all-time high by the end of the year.
Do keep in mind that the above is not a scientific study, however, the data above suggests that there may be some truth in the statement. The data may also indicate that June may be the best time to enter the market and not the traditional November.
May I also point to the fact that during the period reviewed just holding on to the equities and not panicking during corrections would have resulted in a gain of 130 percent.
Antoine Briffa is Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.