COVID-19 & the Idea of Sell in May and Go Away

COVID-19 & The Idea of Sell in May and Go Away The most dangerous phrase in all of investing is “this time it’s different”

One of the oldest stock market strategies is to “Sell in period of the stock market. Investors sell their stocks May and Go Away.” If you factor in this seasonal in May, save their money in cash, bonds, or another “strategy,” COVID-19 might make you think twice safe investment, then buy stocks again in early about employing. Especially on the heels of the best November. monthly performance for the stock market since 1987. Statistics on this Strategy The Strategy As it turns out, stocks have done better during the “Sell in May and go away” is a well-known trading winter-early spring period. According to the Stock adage that suggests that investors should sell their Trader’s Almanac, since 1945 the S&P 500 has stocks in May to avoid a seasonal decline in the stock gained a cumulative 6-month average of nearly 2% market. An investor selling his or her stocks in May from May through October on a price return basis. would then buy stocks again in November because And for the 6-months from November through April, the November through April period shows significantly the S&P 500 has gained 6.7%, on average. stronger growth in the market than the other half of the year. In addition, the S&P 500 has lost money in only 13% of the November-April time periods since 1945 and Where did this “Sell in May and go away” advice about 33% of the time from May through October. originate? Not on Wall Street, but rather in London’s That success rate is remarkable. Maybe the horses financial district. The original saying, “Sell in May and are onto something after all? go away, come back on St. Leger’s Day” refers to a horse race. That’s right, a horse race. But This Time It’s Different? This is probably the most dangerous phrase in all of The St. Leger Stakes is one of England’s greatest investing: “this time it’s different.” In fact, if you are horse race and is run in late September. London discussing investments, the markets, or anything traders would sell their shares, enjoy their summer, financial related and someone says this, don’t walk and return to the market after the St. Leger race. away, run.

The idea is based on seasonality and with this • Most Recent Year: Looking at the S&P 500 strategy, traders are only invested in the stock market from November 1, 2019 through April 30, for about six months of the year (November through 2020, the S&P 500 lost approximately 5%. April). These months are typically the strongest Didn’t work.

• Last Year: Looking at the S&P 500 from ▪ Year-end employee bonuses. November 1, 2018 through April 30, 2019, the S&P 500 returned approximately 8%. But if ▪ Tax refunds. you sold out of equities in May 2019 only to Limitations to this Strategy get back in on November 1, 2019? Well you Despite these favorable statistics, there are limitations would have missed the S&P 500 returning to implementing this strategy. 2.6%. Didn’t work. • The Year Before That: Looking at the S&P ▪ No one knows when to start: From 1988- 500 from November 1, 2017 through April 30, 2015, according to economist John Mauldin, 2018, the S&P 500 returned 2.33%. But if you the best strategy might have been “Sell in sold out of equities in May 2017 only to get August, buy in mid-October”. back in on November 1, 2017? Well you ▪ With any strategy based on averages, any would have missed the S&P 500 returning given year might show an extreme high or 7.83%. Really didn’t work. extreme low, a wave that a buy-and-hold This time it’s different? Utterly dumb. Especially when investor could ride out. you consider what happened in April 2020. ▪ Investors lose short-term gains to taxes Best Month Since 1987 because short-term gains are taxed at your Even though the S&P 500 was down 0.2% for the last regular rate. week of April and even though the S&P 500 was down almost 5% from November 1, 2019 through ▪ Investors face additional transaction costs due April 30, 2020, it was still its best monthly to selling stocks and mutual funds, followed by performance for the S&P 500 since 1987. In fact, buying stocks and mutual funds later. according to Factset: Why “bet the farm” on a simple seasonal strategy having its origins in a summer break before a horse • The DJIA is up 28% from its March 23rd low; race? That would be like gambling… • The S&P 500 is up 27% from its low; and Working with Your Financial Advisor • NASDAQ is up 26% from its low. The key to successful long-term investing, of course, lies in following wise strategies. Your financial Explanations for the November-April advisor understands these strategies. It is generally Success best not to rely on interesting statistics that are not The reality is that there is a lot of money moving explained by actual market trends or economic throughout the economy, and the stock market, from analysis. November through April. Here are some examples: No specific investment strategy is foolproof. Your best ▪ Holiday spending: Halloween, Thanksgiving, strategy as an investor is not to base your plans on Christmas, New Year’s Day, the Super Bowl, market timing or the season. Instead, focus on the Valentine’s Day, Mother’s Day, etc. all come traditional, sensible factors that include assessment of during those months. the business cycles, changing economic conditions, and news from the market. ▪ Back-to-school, Black Friday, and Cyber Monday sales. Your financial advisor is the best source for information about how to handle your money. He or ▪ Employer contributions to employee she can guide you in planning for the future. retirement plans, almost all of which are invested in the stock market, through 401k and other retirement vehicles.