Most of us fondly remember summer vacation from our days in school. For those still in school, or even for some working in education, summer might still be a time that’s marked by many weeks off. Actually, it’s a popular season for most of us to consider taking some time off.
This might also apply to your stock investments. That’s right, based on historical data, it seems as if they like to take summer break too. This is why there’s a saying called “Sell in May and stay away”, referring to the concept of a summer swoon in stock prices.
The idea of sell in May and go away is based on the reality that over time, for whatever reason, stock prices have simply not performed well in the warm weather months here in the Northern Hemisphere. A look at historical stock returns indicates that when looking at monthly performance for 40 years – from 1971 to 2010 – there are clear trends as follows:
As can be seen, beginning in May, market returns tend to slide into a period of poor performance historically. Rates of return have been low in June, and trend lower each month until reaching a nadir in September. Ever heard of the September Effect?
Does this mean that every year stocks perform this way? No. Does this mean that I’m specifically recommending that anyone makes specific buy/sell decisions based on this data? No.
That being said, I think it’s good to be informed, and its food for thought when data reveals some interesting historical stock patterns. Those returns in the colder weather months, from November through April, look pretty good when you remind yourself that these are simply monthly returns. Who knows, maybe people have less recreational options and more time to spend focusing on business and investing during those cold months:)
What Do You Think?
Have you heard of the concept of sell in May and go away?
Why do you suspect that stocks have fared better in other months versus the summer months?
Do you think we can learn from historical trends and patterns in stock prices?