Summer must be near because I keep hearing that annual question? “Should I sell in May and go away?” This Wall Street adage actually comes from old England and referred to Londoners leaving town for the summer and coming back to work only after the last horse race of the season. With London’s financial markets mostly on holiday, little got done and as a result, investment markets were slow. It made sense that it would not be a good time to invest.
With that expression now attributed to Wall Street, the same feeling exists that nothing happens over the summer months while advisors, brokers, and floor traders are off enjoying their vacations. There is even some historical evidence that appears to support the “Sell in May” theory.
In an effort to check its validity today, let’s imagine a fictitious investor, who after having been burned by the 2008 crash, decided to start timing the market using this theory. We shall call this investor Louie. As the summer of 2009 approaches, Louie chooses to sell in May and go away until October. What is the result? During that summer the S&P 500 index* gained 15%. Ouch! Disappointed, but thinking ’09 was an anomaly, when May of 2010 rolls around he gets out of the market again. Unfortunately for Louie, by October of 2010 the same index has seen a summer increase of 16%.
Louie has now missed out on over 31% in S&P Index gains so he gives up on the May selling theory and in 2011 decides to stay in for the whole summer. Oops, from May to October of 2011 the S&P lost over 15%. (Is Louie’s bad timing starting to sound familiar?) He is not quite sure what to do now but after the beating he took in 2011, Louie decides the old saying must really be correct after all so in 2012 he pulls his money out and goes on vacation. When he returns, he finds that the S&P was up 7% in his absence. So much for Wall Street and its sayings.
What may have been true in Old England faces new challenges today. I was visiting a tourist hotel recently and noticed many people sitting around the pools working on their tablet computers while they were on “vacation,” including myself. We just don’t seem to really take vacations anymore. When the London Boys were at the races, business stopped. When today’s investors are in the Bahamas, they are still “virtually” in the office. Work goes on.
There may have been a time when the summer slowdown was a real thing. I am pretty sure those conditions no longer exist. It has been my experience that attempts at timing markets often lead to painful results. The stock market has been on a good rally the past month. It may or not continue during the summer but either way, it will have little to do with horse racing or vacationing as there probably aren’t any investors left who don’t have 24/7 access to their investments no matter what season it may be.
Dan Wyson, CFP® is a long running national financial columnist, author of several books and CEO/Founder of Wyson Financial/Wealth Management 375 E. Riverside Dr. St. George, UT 84790 – 435-986-9525 Securities and Advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment advisor.