Should you sell now, and go away until November?

By Kim Iskyan

The stock market adage "sell in May and go away" is a tired cliché. But this is one cliché that also happens to be true.

Over the past 15 years, stock market returns for many markets are far worse from May through the end of October, than they are during the rest of the year.

So now that we're in June, history suggests that - depending on the market you're looking at - you might be smart to sell your shares now, and not bother with markets again until November. Let me explain…

Sell in May and go away, don't come back till St. Leger day

The full (British) expression, "Sell in May and go away, don't come back till St. Leger day," refers to the last horse race on the English racing calendar, which is usually held in mid-September. Traditionally, brokers would either take the summer off, or be too distracted by the races to do much work - so markets would be quiet.

Although horses don't figure into it, a similar dynamic might help explain recent market underperformance for May-October. In the late spring and summer, many investors and traders are on holiday, so markets tend to drift. And after the summer, they're back on the trading floor, so there's more going on. In the world of high-frequency trading and 24/7 markets, though, this explanation holds less water.

Whatever the reason, some markets underperform between May and October

As you can see in the table below, Singapore's Straits Times Index, the S&P 500 Index and the MSCI World Index all performed significantly better on average from November 1 to April 30, than from May 1 to October 31, over the past 15 years.

For example, the Straits Times Index has on average returned 5.2 percent from May through October and appreciated by 7.9 percent during the period from November to April.

The S&P 500 has returned 3.6 percent from May through October and 6.6 percent from November to April. And the MSCI World Index returned 3.5 percent from May through October and 6.7 percent from November to April.

However, the "sell in May and go away" adage didn't hold up for the MSCI Asia ex Japan Index and Hong Kong's Hang Seng Index. As you can see, the MSCI Asia ex Japan Index returned an average of 7.8 percent for both May to October and November to April. Meanwhile, the Hang Seng Index actually outperformed from May to October (with 11.4 percent) compared to November to April (with just a 3.5 percent return).

And so far this year? The month of May (which may or may not be reflective of the entire period) hasn't helped much. In May, the MSCI Asia ex Japan index was down 1.3 percent; the Singapore market fell 5.4 percent, the Hang Seng was down 0.4 percent, the S&P 500 rose 2.4 percent and the MSCI World also rose, by 0.7 percent.

So "sell in May and go away" doesn't work for all markets… but history suggests that it might make sense for some of them.

However, the effectiveness of these types of strategies usually declines as more investors apply them. And of course, what holds for an index as a whole won't hold up for any specific stocks separately. So the strategy - if implemented in a vacuum - would work best with an index ETF or fund.

But if you're inclined to take some time off from the stock market, now until the end of October would be a good time to do it.

 

Kim Iskyan
Kim Iskyan is the publisher of Stansberry Churchouse Research, an independent investment research company based in Singapore and Hong Kong that delivers investment insight on Asia and around the world. Kim has nearly 25 years of experience as a stock analyst, hedge fund manager, political risk consultant, and financial commentator in more than half a dozen emerging and frontier markets. He's been quoted in the Economist, The New York Times, the Wall Street Journal, Barron's, and Bloomberg, and has appeared on Fox Business News, China Central Television, and Bloomberg TV, and has written commentary for the Wall Street Journal, Slate.com, Salon, TheStreet.com, breakingviews.com, and other publications. For more of his insights, Click here to sign up to receive the Asia Wealth Investment Daily in your inbox every day, for free.

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