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 .