Sell in May and Go Away?

There is an old saying in the stock market that goes:

�Sell in May and Go Away�

The saying means that an investor should consider selling all of their stocks in May, only to re-buy later in the year (beginning of November).

The reason? The markets tend to underperform from June to October (or, at least this is what most people believe).

As usual, I had to run the numbers to see if this bit of �wisdom� should be followed by the average investor.

Let�s see how the three major US market indexes have performed historically (the DJIA data goes back to 1929) in June, July, August, September and October:

DJIA:

Return in June has been 0.56%
Return in July has been 1.44%
Return in August has been 0.81%
Return in September has been -1.41%
Return in October has been -0.03%

NASDAQ

Return in June has been 0.95%
Return in July has been -0.14%
Return in August has been 0.4%
Return in September has been -0.85%
Return in October has been 0.2%

S&P 500

Return in June has been 0.03%
Return in July has been 0.9%
Return in August has been 0.13%
Return in September has been -0.62%
Return in October has been 0.56%

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So, what does this data tell us?

1) June, July and August tend to be respectable months for the major indexes. Sure, some tend to perform better than others in certain months, but there is nothing here that would lead me to dump everything once June rolled around.

2) September is definitely a weak month historically for the markets.

3) The markets have not performed all that badly in October over the years, despite the month having an absolutely terrible reputation.

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Sell in May and go away? Maybe, but as you can clearly see, the perception that the markets perform horribly anytime between the end of May and the beginning of November is not really accurate.

Another point - selling all of your stocks and re-buying a few months later will increase commissions and possibly introduce some tax issues as well, so think before you act.

Source: Dow Jones Historical Data

Nasdaq Historical Data

S&P 500 Historical Data

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