Posted by LeGianT on May 8, 2009
Sell in May and go away: fact or fallacy?
By Prieur du Plessis – April 30th, 2009
From: The Big Picture
“Sell in May and go away” also holds true for the US stock markets. An updated study by Plexus Asset Management of the S&P 500 Index shows that the returns of the “good” six-month periods from January 1950 to March 2009 were 7.9% per annum whereas those of the “bad” periods were 2.5% per annum.
A study of the pattern in monthly returns reveals that the “bad” periods of the S&P 500 Index are quite distinct, with five of the six months from May to October having lower average monthly returns than the six months of the good periods. Interestingly, May – the first month of the bad patch – is the only exception.
Historical average returns from May to October in emerging markets also tended to be weaker than those from November to April, as shown in the graph below (hat tip: US Global Funds).
But what exactly does this mean for the investor who contemplates timing the market by selling in May and reinvesting in November? Further analysis shows that had one kept the investment in the S&P 500 Index only during the “good” six-month periods, and reinvested the proceeds in the money market during the “bad” six-month periods, the total return would have been 10.5% per annum.