Debunkery: Learn It, Do It, and Profit From It—Seeing Through Wall Street's Money-Killing Myths

BUNK 25

SELL IN MAY

Everybody’s heard, “Sell in May and go away.” Hopefully, most ignore it. It’s supposed to mean summer is a bad time for stocks, so you can safely sell in May, let stocks drift lower, and buy back in the fall. It’s also very wrong and financially bad advice.

Amazingly, every May, particularly if stocks are down, this gets echoed endlessly in headlines. (It’s very similar to “so goes January” from Bunk 24—folks who are bearishly biased seem to love this.) I hear from some clients and Forbes readers if stocks have a tough week or two during the summer months, “Everybody knows to ‘sell in May!’”

But what does “sell in May” really mean? Sell when in May? May 1? The 31? The 12? April 30? And if everyone knows to sell in May (if we ever figure out exactly when), if you’re smart, don’t you sell in April before everyone else starts selling? And if you could figure that out, why not sell even earlier to beat that early crowd? When does it end? (People who like automatic sell rules like these never think through that logic.)

Sell in May . . . When? And Then What?

There’s more. If I sell in May, when the heck do I buy back? People say it has to do with the summer being bad—so do I buy back on September 1? The autumnal equinox? When? “Sell in May” has myriad permutations, but none hold water. Check history. Vary the date however you want—it doesn’t work.

Table 25.1 shows average S&P 500 returns by month. Since 1926, stocks have averaged 0.38 percent in May. Not huge, ...