The Sell in May and Go Away strategy is a seasonal market timing strategy that suggests investors should sell their stocks in May and buy them back in November. The strategy is based on the historical observation that the stock market tends to perform better during the six-month period from November to April than during the six-month period from May to October.
Historical Evidence
There is some historical evidence to support the Sell in May and Go Away strategy. For example, a study by the financial research firm Ned Davis Research found that the S&P 500 index has gained an average of 7.4% from November to April since 1928, compared to an average gain of just 0.3% from May to October. However, it is important to note that past performance is not a guarantee of future results.
Potential Benefits
There are a few potential benefits to using the Sell in May and Go Away strategy. First, it can help investors avoid some of the volatility that is common in the stock market during the summer months. Second, it can help investors lock in gains that they have made during the previous six-month period. Third, it can free up cash that investors can use for other purposes, such as vacations or home improvements.
Potential Risks
There are also some potential risks associated with using the Sell in May and Go Away strategy. First, investors who sell their stocks in May may miss out on potential gains if the market continues to rise during the summer months. Second, investors who buy their stocks back in November may have to pay a higher price than they would have if they had held onto them. Third, the strategy can be difficult to implement consistently, as it requires investors to have the discipline to sell their stocks in May and buy them back in November, regardless of market conditions.
Conclusion
The Sell in May and Go Away strategy is a seasonal market timing strategy that has the potential to generate positive returns for investors. However, it is important to be aware of the potential risks involved before using the strategy. Investors who are considering using the strategy should carefully consider their own financial goals and risk tolerance before making a decision.
Kind regards
M. Davis.
