A common investing saying is “Sell in May and go away.” This phrase refers to the practice of cashing out some of your stocks in May, keeping the funds liquid for about six months, and then re-investing them in autumn. The idea behind this strategy is to take advantage of positive market trends during specific periods like the holiday shopping season, yearly portfolio rebalancing, and an abundance of full-year and first-quarter earnings reports released early in the year. By doing so, you aim to ride the bullish market trends and then avoid the market for several months.
The S&P 500 index (^GSPC) tends to perform slightly better from November to May compared to the rest of the year, according to some statistical data. However, there are significant issues with the “sell in May” strategy.
Old market trends can change
Historically, the idea that one should sell their investments in May and re-enter the market in the fall had some merit. However, this trend has not been consistent in recent times. To be precise, investors following the “sell in May” strategy have only seen positive returns in four out of the last ten years. On the contrary, the opposite pattern, where better returns were achieved by staying invested from May to December, was observed in six instances, including the period from 2022 to 2024.
If you had chosen to sell your investments during May in any given year, you would have missed out on significantly higher returns compared to the rest of the year. For instance, the difference in returns was as high as 15.5% in the year 2022 and 15.2% in 2024, meaning that you would have lost a substantial portion of your potential gains by selling during May.
Market timing is a game of chance
The evolving patterns clearly demonstrate that it’s challenging to foresee immediate fluctuations in the market. Not even renowned investor Warren Buffett could accurately predict the stock market’s behavior for the coming days, weeks, or years.
By closely examining long-term market movements and conducting thorough analyses of individual stocks and companies, you stand a better chance of outperforming the market over time. Following a trading strategy based solely on calendar patterns might not yield the same favorable results.
Consider revising your strategy for the future. Instead of following the old adage of selling in May and staying away from the stock market until November, perhaps it’s time to reevaluate that approach.
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2025-07-22 20:24