Blog : 5 Reasons THIS is the Year to "Sell in May and Go Away"
by Peter Leeds on April 14th, 2015
Statistical theory suggest selling your stocks in May, then buying them back in September, is a profitable approach.
More importantly, it removes the downside risk when your holdings are in cash, rather than stocks.
More importantly again, it allows you to relax, or spend time with family, without the constant distraction and time requirements - get some life balance.
Even more importantly than that, the "Sell in May and Go Away" theory is not as effective, predictable, or accurate as people who love "tips that rhyme" would like to believe.
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However, there are some occasions where selling in May could be beneficial for most investors. This may be one of those times, and there are 5 reasons.
1. Greece: Not sure if you've been following the game of billion dollar posturing that Germany and Greece are playing right now, but it could shake the very foundation of the Eurozone, and by extension throw shock waves through global markets.
Here's the skinny version:
- Greece owes $2.5 billion in the next 2 months to the Eurozone
- Greece does not have the money
- They may default, getting them kicked out of the Eurozone
- They may get more loans from the EU, to pay the debt they owe the EU, inflating their economic problem
- Greece has already threatened to default if they don't get more unpayable debt
Either way, there is no good solution. There are plenty of ways this could end badly.
Strong Dollar: The U.S. dollar has increased in comparative value by almost 25% since May of last year. Recently the American dollar hit an all-time high.
More than faith in the U.S. economy, the rally has been predicated in a good part by a lack of other nations to invest in - kind of like buying the best among numerous troubled economies... or eating off the healthy choice menu at McDonald's.
The real issue is not that the dollar is rallying. The concern stems from the speed and degree of the change. The last time we saw the dollar rally so strongly was 2008, just before a stock market crash.
Many companies will suffer from a strong dollar.
- Multinationals (IBM, Coca Cola, Microsoft, etc...) make lower profits from sales. The effects of the strong dollar are about to be revealed as major blue-chip companies report their earnings in the coming weeks.
- Businesses which sell oil, gold, or any other commodities, since the value of their product is directly inverse to dollar strength. Stronger dollar = cheaper oil
Weak Economy: Don't let the Federal Reserve's shell game fool you. They have not been able to raise interest rates because the economy is still shaky, even after years of near-zero interest rates. Positive economic reports have become the exception, and negative numbers are "re-cast" to sound positive.
Stock Market Rally: The last several years has seen the markets soar, with the majority of that rise coming with the Federal Reserve "printing" of trillions of brand-new dollars. Now that printing has stopped.
Investors are notorious for acting ahead of events, and the coming interest rate hikes, which many worry could crater the entire economy, are common knowledge. Investors may be starting to position themselves for the widely expected interest rate hikes by taking some of their recent profits off the table.
Even the most basic technical analysis is showing warning signs. Ever since the Dow Jones Industrial Average hit an all-time high of 18,288, the markets sold off.
They tried to climb again, only able to reach 18,200 before selling off.
Then tried to climb, this time only reaching 18,100...
Maybe you see a pattern.
Historical Precedent and Self-Fulfilling Prophecy: Investors who have "Sold in May" have done moderately well in most of the recent years, with last year being a major exception.
While the concept is not as reliable or simple as it sounds, many investors will follow the rhyme nonetheless. That percentage of people who sell may actually cause a market correction, inciting even more liquidations from spooked traders.
If investing profitably was as simple as, "Sell in May and Go Away," then we would all be much richer. In fact, if any concept worked every time, eventually every single investor in the world would be following it.
The hard truth is that it does not work in any meaningful or reliable way. However, in this particular year, selling in May might prove terribly wise.
This is NOT investment advice, it is simply disinterested personal opinion.
As of January 2017 we no longer publish the blog and it has been removed from the webiste menu.
You are reading this old blog entry because we still like to reference it. :-)
You are reading this old blog entry because we still like to reference it. :-)
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