Buy in May and Stay Invested

By Charlie Bilello

It is their job to entertain. It is your job to ignore…

“Sell in May and Go Away.”

Perhaps the catchiest of all market sayings and one we hear repeated year after year. But how has it actually served investors over the years? Let’s take a look.

Since 1928, the S&P 500 returns from May through October have lagged the returns from November through April.

Case closed, then, sell your stocks at the end of April and buy back at the end of October?

Not so fast. Why not?

Because the returns from May through October are still positive, with the average May-October up 3.9% and the median up 5.3%. Needless to say, “staying away” from positive returns is not the best investment strategy.

At 71%, the odds of a positive May through October are only slightly below the odds of a positive return from November through April (73%).

Still not convinced that Sell in May is a bunk theory?

Below is a chart of $10,000 invested in 1928 with a “Sell in May” strategy versus buy and hold. If you sold each May, put the money under your mattress, and bought back at the end of each October, your $10,000 would grow to $2.2 million (6.1% annualized return) versus $33.2 million (9.4% annualized return) for buy and hold.

In the short run, the day, week or month in which you choose to buy stocks will invariably lead to different returns. This inherent randomness in markets will sometimes work in your favor and other times work against you. But at the end of the day, it is just noise.

It is the media’s job to promote that noise as a source of entertainment. And it is the job of the long-term investor to ignore it. There is simply no evidence that a particular month is the best or worst time to invest.

The key to earning really large returns is investing long enough to experience the magic of compounding. Which is why a much more helpful saying than “Sell in May and Go Away” would be “Buy in May (and every other month) and Stay Invested.”

I won’t hold my breath waiting to see that in the headlines anytime soon.

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Gary

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