Sell in May in 2012?

As we move toward summer in Minnesota, it is one again necessary to address one of the most famous stock market adages.  The age-old investment wisdom of “Sell in May and go away" is sure to grab its share of headlines this week. 

Like other bits of stock market wisdom, the bias towards selling stocks in the first week of May is grounded in a substantial amount of verified historical stock market returns. 

According to the Stock Trader’s Almanac and their “Market Seasonality” study, the stock market performs far better during the November through April time period than it does from May through October.

If you invested $10,000 in the Dow Jones Industrial Average on May 1st and sold it on October 31st each year since 1950, you have lost money over the last 62 years!

The entire growth of the Dow Industrials since 1950 has come in the "good" six months of the year—the calendar period from November through April.

Whether you average it out, annualize it, or compound it, there is clearly a wide investment return advantage for the 6-month period from November through April.

Most stock market investors can remember back to the year 2000.  Since the beginning of that year, the Dow Jones Industrial Average is down over four percent.  During the seasonally weak May through October periods in each of those years, the same index is down over 31%!

During the November through April periods in each of those years since 2000, the same index is up over 64%!

There is a stock market investment return bias in the historical November through April calendar time periods that most stock market investors are not aware of.

For now, the stock market is still holding on to its recent gains.  But turning the calendar page into May is surely the time to make sure that you have a stock market risk management game plan in place in order to not let those gains slip away over another beautiful Minnesota summer.

Ric Lager
Lager & Company, Inc.