• Robert Baharian

Sell In May And Go Away

This old adage is thought to have originated from an old English saying, "Sell in May and go away, and come on back on St. Leger's Day." It refers to a custom of aristocrats, merchants, and bankers who would leave the city of London and escape to the country during the hot summer months. St. Leger's Day refers to the St. Leger's Stakes, a thoroughbred horse race held in mid-September.

It's based on the historical underperformance of stocks in the "summery" six-month period commencing in May and ending in October, compared to the "wintery" six-month period from November to April. If an investor follows this strategy, they would divest their equity holdings in May (or at least, the late spring) and invest again in November (or the mid-autumn).

So how significant is the variance in performance between the best six and worst six calendar months? In today's chart we take a look at how this strategy has held up over the years - the chart illustrates the performance of the S&P 500 during the calendar months of November through April (red line) and the performance of the S&P 500 during the calendar months of May through October (blue line). The difference in performance is noteworthy.

Since the GFC however, the Sell in May strategy hasn't held up as well as it may have in the last. Here's the return of the US stock market (S&P 500) for the month of May sine the GFC:

2010: -0.3%

2011: -8.1%

2012: +1.0%

2013: +10.0%

2014: +7.1%

2015: +0.3%

2016: +2.9%

2017: +8.0%

2018: +2.4%

2019: +3.1%

2020: +7.5%

Average: +3.08%

Although history tells us this six monthly rotation would have worked well, assuming one could have stuck to the rules, more recent data and analysis shows us this strategy would not have worked anywhere near as well given it has given the bull market we've had since the GFC.

Sure, Sell In May And Go Away might be a thing. However I'm yet to meet anyone implement and execute such a strategy consistently and over long periods of time. And if it actually was a thing, professional money managers around the world would be exploiting this in a heart beat. And if that were the case, it can't be a thing because the alpha (excess returns) would be simply be wiped away because everyone knows about it. Investing isn't as easy as you think.