"Sell In May" Is A Steaming Pile Of...

When and if the weather ever decides to warm up here in the Northeast, people will discuss how stupid we are to think that the cycles of nature will play by our calendar rules just because we arbitrarily say they should.

It’s the same thing with markets. Every year millions of suckers decide that arbitrary, meaningless calendar timing holds more weight than fundamentals or technical analysis. And none of these is more prominent, or more stupid, than “Sell in May and go away.”

Forget the fact that no one seems to agree upon exactly when to sell in May. Is it on May 1st? May 15th? Noon on May 23rd?

Forget the fact that there is equal disagreement on when to get back in after “selling in May.” September? October? November? And what about the investors who aren’t on the Julian calendar? Did anyone send them the memo?

Forget the fact that May, historically speaking, has been a positive month on average for the S&P 500.

Or that June—August has the best average return of any 3-month rolling period.

Or that there is little evidence that other investments like cash bonds, or commodities will consistently outperform equities, especially after you effectively declare summer off-limits for buying stocks.

The kind folks over at Fisher Investments’ Marketminder have a gleeful annual tradition of trashing the “sell in May” myth, and here is one of their best arguments against it that you hardly ever hear anywhere else: If “Sell In May” actually worked, wouldn’t the smart money start getting out of equities starting in April? Wouldn’t that push the selloff or correction earlier and earlier into the year? Pretty soon we’d be looking at “Sell in January! In fact, always be selling except for the second half of December, because that’s when the Santa Claus rally is due!”

There’s no evidence that “Sell in May” works consistently; don’t believe the media parrots who slice and dice date ranges to prove this idea.

Now, none of this is to say that summers can’t be poor times to invest—only that it’s asinine to make a judgment call that a certain time period is uniformly bad for investing because of an insipid, bumper-sticker nursery rhyme.

If clever rhymes and wordplay are what you’re looking for, read Matthew Arnold instead—your returns will be much better.

For other well-written roasts of this investing myth, check out the following resources:

http://www.marketminder.com/a/fisher-investments-may-day/fc69d88d-0831-…
http://www.marketminder.com/a/fisher-investments-april-showers-bring-ma…
http://www.marketminder.com/a/fisher-investments-may-madness/148ffaad-e…