From Wealth Wire / April 23, 2012
If you’re like a lot of investors, then you might be getting prepped to “sell in May and go away,” shedding stocks in anticipation of the historical market-wide weakness that kicks in during the middle of the year. And the math supports this assumption. Every month from May through September registers, on average, the poorest performances for the year, with a couple of them likely to dole out a loss.
But before you dump the bulk of your holdings — especially your “Forever Stocks” — out of fear of what might happen to them during a summertime lull, it pays to take a closer look at the numbers behind this old axiom. As it turns out, investors may be better off just standing pat. Here’s why…
Selling in May makes some sense…
The “Sell in May” premise actually has a superficial logic to it. The next five months are indeed poor performers. Since 1950, June and September have averaged -0.1% and -0.6% dips. August’s results have generally been near breakeven levels. Even the two winning months have been tepid winners: May’s average change is a mere 0.2% gain, and July — the best in the bunch — typically registers only a 1.0% return.
No wonder investors are encouraged to steer clear. But month-by-month averages alone just don’t paint the whole picture.
… but the logic is incomplete
While it is true that every month between May and September is, on average, historically weak, it’s not true that the average five-month span is weak. The average change for the S&P 500 between the end of April and the end of September is actually a 0.6% gain. In addition, it’s still more likely that every one of those months will post a gain rather than a loss, except for September.