The following article appeared in the Globe And Mail on Monday May 10, 2010
Why Some Investors sell in May and go away, appeared in The Globe And Mail dated Monday May 10, 2010.
"The stock market’s brutal selloff last week may have caught some investors flat-footed, but for followers of the “sell in May and go away” strategy, the plunge came right on schedule.
Nobody knows exactly why the stock market has an uncanny tendency to deliver lousy returns from May through October, but post stellar gains from November through April.
The difference is staggering. According to the Stock Trader’s Almanac, $10,000 (U.S.) invested in the Dow Jones industrial average from Nov. 1 to April 30 every year from 1950 to 2008 would have grown to $474,305, assuming the money was switched to fixed-income investments from May 1 to Oct. 31.
But if the $10,000 was invested in stocks from May 1 to Oct. 31 and parked in fixed-income for the other six months, it would have shrunk to $8,012.
Robert Cable, director of wealth management with ScotiaMcLeod, is so convinced of the “sell in May” strategy that he switches a portion of his clients’ money – usually 10 to 33 per cent – to capitalize on the trend. He does the same with his own portfolio.
“I guess some people would say it’s dumb luck, but I’ve got data going back to 1950,” he says.
Rather than sell precisely on May 1 and buy on Nov. 1, Mr. Cable tracks the market’s moving average to time his exit and entry points. Early last week, before the panic hit, he got a “sell” signal and moved some money out of stocks.
Several theories attempt to explain the market’s seasonal trends. During the summer, fund managers are lounging at the cottage instead of buying stocks, so prices slide. Markets often rebound in December when investors are in a cheerful mood. In Canada, the registered retirement savings plan season gives stocks another boost.
But not everyone thinks it’s wise to try to capitalize on seasonal trends.
If you’d sold in May, 2009, for example, you would have missed out on big gains. In Canada, stocks also rose during the supposedly bad months every year from 2003 to 2007.
Skeptics say the seasonal trends may be nothing more than a product of “data mining.” In other words, if you examine enough data, patterns will emerge, even if they’re just the product of chance.
“Even if it’s real, even if it’s something that will hold up in the future, you’re still going to get nailed by it from time to time,” says William Bernstein, author of The Investor’s Manifesto. Attempting to time market cycles “is not something that’s conducive to sleeping at night.”
But Mr. Cable is convinced he’s on to something.
“People can say it’s a coincidence, but it’s been a coincidence for a very long time.”
http://www.theglobeandmail.com/globe-investor/investment-ideas/why-some-investors-sell-in-may-and-go-away/article1563723/
Cheers; Scott
