For What It’s Worth: Sell in May
For What It’s Worth is an occasional look at the meanings and origins of words and expressions investors may encounter.
By Joel Dresang
“Sell in May and go away” is a rhyme, not sensible investment advice.
Sure, summer months tend to be relatively lackluster for stocks. September, June and August have the lowest average returns for the S&P 500 since 1950, according to the 2016 Stock Trader’s Almanac.
But if, as the adage suggests, you sold your stocks in May and didn’t get back into the market until the fall, you’d have missed five of the 10 best monthly performances of the S&P in the past 65 years.
“Don’t Sell in May; Don’t Go Away,” a Money Talk Video with Marc Amateis
Indeed, trading volume diminishes in the summer. In 2014, the number of shares of stock changing hands fell 13% between Memorial Day and Labor Day, according to The Wall Street Journal.
The expression “Sell in May” does not come from Wall Street, however. It’s from London, where traders have an even longer history of enjoying summer vacations away from the financial district. Traditionally, British traders cleared out in May and returned in mid-September after the final race of Britain’s Triple Crown – the St. Leger Stakes.
The original saying was “Sell in May, and go away; come back on St. Leger’s Day.”
Long-term investors ought to look askance at simplistic advice on when to get in and out of the market – especially if it’s in rhyme. Making occasional adjustments is part of prudent portfolio management, but timing changes to occurrences that have no relationship to your investments can disrupt your financial plans.
And that calls to mind another adage involving horses. This one predates Abraham Lincoln, who’s attributed to using it to question the wisdom of changing leadership during the Civil War: “Don’t swap horses in the middle of the stream.”
Joel Dresang is vice president-communications at Landaas & Company.
(initially posted June 29, 2016)