There is an old stock market saying: “Sell in May and go away”. But does this saying really ring true for investors, or should they stick to the motto of “Buy in May and stash away”? This issue is discussed by the financial expert and ISM lecturer Prof. Dr. Friedrich-Wilhelm Kersting in his guest article.
Clear, simple and understandable rules of conduct – are something every investor wants. This is the reason why there are so many stock market rules and regulations, and adages. There are in fact two for the month of May: “Sell in may and go away!” and “Buy in May and stash away!”. So which rule should investors follow?
Long-term statistics actually show that markets are less likely to rise between May and September than in the period October to April, and may even fall. However, there is no guarantee this phenomenon will occur each year. Quite the contrary – there have been years in the past when stock markets rose well above average during the supposedly weaker summer months. Often, investors would have actually fared better by flipping this rule on its head. For instance, during the financial crisis it would have been wiser to realise profits in mid September 2008 and to re-enter the market in May 2009. Stock prices do not follow the calendar year – and the saying “Sell in May and go away” is not really much of a help.
“Buy in May and stash away” is much more useful – especially the second part of the statement. “Time” appears to be much more important than “point in time”. The safest way to achieve success is to invest long term and to hold tight (“stash away”), resisting the temptation of selling as soon as the ride gets bumpy.
Another stock market adage – “Too much trend-chasing leads to the poorhouse” – should be heeded to avoid unnecessary transaction costs which ultimately reduce your returns.
Author: Prof. Dr. Friedrich-Wilhelm Kersting