Sell in May and Go Away?

We’ll all be hearing this phrase a lot over this next month as well as throughout the entire summer if the market retreats during this period. It’s a well-known trading adage attributed to that famous author “Anonymous”. The entire quote is actually “Sell in May and go away, don’t come back 'til St. Leger day”. Unfortunately hardly anyone in the US knows when, or even what, St Leger day is. It’s the day that a very special horse race occurs in the United Kingdom and it's considered part of England's “Triple Crown” of races. The race is run on the second Saturday in September so it actually occurs on a different day each year.

​The intent of the phrase is to warn all investors to sell all their securities in May and avoid the seasonal decline that often occurs during the long summer months. The idea is that by doing this an investor would be much better off than staying in equities throughout the entire year.

This strategy is based on the historical performance of securities during the May to September timeframe. According to the Stock Trader's Almanac, since 1950, the Dow Jones Industrial Average has had an average return of only 0.3% during the May-October period, compared with an average gain of 7.5% during the November-April period.

While no one knows exactly why this seasonal trading pattern occurs, it’s assumed that lower trading volumes that usually occur during the summer vacations is the reason for the discrepancy in performance during this period.

As for me, I’m not going anywhere.