Old Wall Street Adage: Sell in May and Go Away
The old Wall Street saying goes: “Sell in May and go away,” because the period from November through April results in greater gains than the period from May through October. The origins come from when the Stock Trader’s Almanac did an empirical study and had some staggering results. They took $10,000 and invested it into the stocks of the Dow Jones industrial average from November to April, then switched to fixed income for May through October - over 56 years the $10k became $544,323. When they did the reverse, investing in the DJIA from May through October and then fixed income from November through April, it resulted in a loss of $272.
So, any potential reasons why?
- Tax returns due in April usually result in a lot of folks putting money into retirement accounts like Roth and Traditional IRAs.
- Funds start to dump losers prior to the end of their fiscal years and some might be taking advantage of the wash rule.
- The worst month of the year for the Dow, Nasdaq and S&P 500 is September, that can’t help the six month period.
- People like to take the summer off.
Now before you run off and start implementing a trading strategy based on this idea, check out the Motley Fool’s take on Sell in May.
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There are 6 comments, add your thoughts now!
I’m trying this for the first time (adjusted portfolio allocations May 1st):
http://pfodyssey.wordpress.com/2007/06/07/stock-market-correction-now/
Of course, I didn’t have full conviction and stayed invested…just much less risk (ex: cut international funds in half and tripled my stake in my capital appreciation fund)
[...] Jim looks at the old Wall Street strategy that goes like this: Sell in May and go Away. [...]
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[...] Sell in May and Go Away - Sometimes this isn’t a bad idea. Jim explains this old Wall Street adage and the reasoning behind it. [...]
You’ll notice the Nasdaq is now at a 6 1/2 year high. So much for sell in May and go away…
I’ve always wanted to give this a try, but I didn’t want to get into market timing. Plus, what are you supposed to do with the money in May through October? It looks like it stays fairly stagnant over the long term. I guess I could sweep it into a high yield savings account, but that doesn’t seem very exciting.
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