The Capitalist Investor - Episode 75

Sell in May and go away stems from a saying in England, “Sell in May and go away and come back on St. Leger’s Day.” St. Leger’s Day is the last leg of the British Triple Crown (horse race) around mid-September. Everyone wanted to head out to the country to escape the heat. The basic gist of this saying is that from May–October the stock market experiences what’s known as weak seasonality. However, historically, May–October is typically still positive. So should you sell in May and go away? We share what we think you should do in this episode of The Capitalist Investor!

Outline of This Episode

  • [1:04] Sell in May and go away
  • [2:24] What the statistics tell us
  • [9:35] What short-term investors should do
  • [11:17] What long-term investors should do
  • [12:48] The adage is a market-timing trap
  • [16:54] Sell in May and go away is outdated

Sell in May and go away

Derek found a chart that shows changes from month to month. In May, the market was down -0.1%. But he found that the worst month was actually September at -1%. A lot of crashes (1923, 2008, etc.) started around Sept./Oct.

Research from 1928–2021 shows us that July is the best month of the year, up 1.6%. April is the second best at +1.5%, December is +1.3%, and January is +1.2%. June is usually up 0.8% and August is up on average 0.7%. From 1980–2018, September is the worst month at -0.7% and August is at -0.15%.

So it all depends on the timeframe you look at. But we don’t see a reason to bail on stocks and go all-in on bonds—especially as a long-term investor. There may be some seasonal downturns, but how does it apply to today? If you sold in May and went away in 2020, you’d be down around 16–17% right now.

From 2010–2020 there were only three negative years. In 2010, the market was down 0.3%. In 2011, the market was down 8.1%. In 2015, it was -0.3%. There was only one year where “Sell in May and go away” would actually work. If you sold off, you missed four good years to avoid one bad year. I’ll take the 4-to-1 odds.

What short-term investors should do

What is your time horizon? Are you a trader (investing for days to months)? Or a long-term investor (investing for years)? The strategy is different depending on your time horizon. If you’re a trader, defensives outperform cyclicals during this period of weak seasonality. A trader should look at buying into consumer staples, healthcare, or utilities. You could look at selling some of your tech, consumer discretionary, etc. Why? Consumer staples have risen on average 4.6% during that May–October period since 1930 (versus 2.2% for the overall market).

What long-term investors should do

We want to buy stock that we believe will be higher 12 months from now. We expect it to be up 10% to enter a position. If you are a long-term investor, buy the economically-sensitive cyclical positions when they sell off and hit a price you’re comfortable with. That includes tech stocks, like Teledoc. Telemedicine isn’t going away anytime soon. If you can get it at the right price, do it. A long-term investor should come up with a list of their favorite stocks, determine a comfortable entry point, and wait. There will be a time where you’d want to buy it.

The old adage is a market-timing trap

“Sell in May and go away” is trying to time the market. It’s eventually going to be a losing proposition. The people that are proponents of that strategy have to come back at the right time for anything to work. It’s impossible to do. Instead, pay attention to bargain stocks that are at a price you want to get in at. “Sell in May and go away” is outdated. The rules have changed and there are no easy answers. Instead, invest in the companies that you feel strongly about.

Resources & People Mentioned

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Show Notes by

Keep Listening to The Capitalist Investor:
Episode 15:
Spending Strategies in a Bear Market, Ep #15
Episode 31:
Handicapping the 2020 Election, Ep #31
Episode 47:
11 Investments in Your Home That Pay Off, Ep #47
Episode 63:
Jeff Bezos and Amazon: Past, Present, and Future Ep #63
Episode 79:
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Episode 95:
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Episode 111:
Special Episode – Talking Energy with Daniel Turner, Ep. #111
Episode 127:
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