Does Sell in May Really Work?

There’s an old saying on Wall Street to “sell in May and go away.” And to be very formal, one can add, “don’t come back till St. Leger day.”

So…is this true? The answer is “historically, yes.”

I took all the numbers of the Dow Jones Industrial Average from its first day of trading in 1896 until the end of 2017. Here’s how it works out. From May 6 through October 29, the DJIA has had an average gain of 0.49%. The rest of the year, the index has averaged 7.11%. (Note that these numbers don’t include dividends.)

In other words, for half the year, the Dow has been flat, and the entire historic gain has come during the other half of the year.

But what does this mean for investors? The answer is nothing. It’s interesting how market returns have worked out over a very long period, but it tells us nothing about a coherent investing strategy. To go in and out of the market will bring up fees and taxes, among other headaches.

Ryan Detrick noted that if you sold in May during the past six years, you lost out on five up Mays. The average gain was 4.8%. The one down year was just 0.3%.

Posted by on April 30th, 2018 at 10:03 am


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