SELL IN MAY AND GO AWAY – Does It Really Work?

Sell In May And Go Away is an investment strategy that suggests the months of November through the end of April are the best performing months. Investors should sell their holding at the end of April and go to cash until the next November.

Does this really work? Are markets cyclical in nature and can be timed? In Academic circles they reject this idea because it violates the efficient-market hypothesis (EMH). Others believe the market is random and can not be timed such as this strategy suggests.


I’m so glad you have come here because I’m going to examine this trading strategy and let the facts speak for themselves.


I’m using the last 30 years. During this period the markets had some historical rallies and well as historical market crashes. A 30 year time frame should also answer any consistency concerns you may have about the “Sell In May Then Go Away”.



THE BAD MONTHS – May thru October


The first chart I am sharing is the gains/losses of the S&P 500 index from the beginning of May to the end of October over the last 30 years. As per the strategy, if you were to sell at the end of April, go to cash, and buy back in at the end of October, these are the gains/losses you would have missed out on:

YEAR START END RETURN
1987 288.36 251.79 -12.68%
1988 261.33 278.97 6.75%
1989 309.64 340.36 9.92%
1990 330.80 304.00 -8.10%
1991 375.34 392.45 4.56%
1992 414.95 418.68 0.90%
1993 440.19 467.83 6.28%
1994 450.91 472.35 4.75%
1995 514.71 581.50 12.98%
1996 654.17 705.27 7.81%
1997 801.34 914.62 14.14%
1998 1111.75 1098.67 -1.18%
1999 1335.18 1362.93 2.08%
2000 1452.43 1429.40 -1.59%
2001 1249.46 1059.78 -15.18%
2002 1076.92 885.76 -17.75%
2003 916.92 1050.71 14.59%
2004 1107.30 1130.20 2.07%
2005 1156.85 1207.01 4.34%
2006 1310.61 1377.94 5.14%
2007 1482.37 1549.38 4.52%
2008 1385.59 968.75 -30.08%
2009 872.81 1036.18 18.72%
2010 1186.68 1183.26 -0.29%
2011 1363.61 1253.30 -8.09%
2012 1397.91 1412.16 1.02%
2013 1597.57 1756.54 9.95%
2014 1883.95 2018.05 7.12%
2015 2085.51 2079.36 -0.29%
2016 2065.30 2126.15 2.95%
2017 2384.20 2575.26 8.01%

# of Winning Years: 21
# of Losing Years: 10
Avg 6-Month Gain Per Year: +1.77%

SUMMARY:

With 66% winning years, the S&P 500 was only able to produce an average gain of 1.77% during the bad six months of the year. Annualized gain would be 3.54% a year. Sell In May And Go Away is correct. Those are some bad months. There are a lot of better opportunities that return more than 3.5% annually.


What makes this number worse, all the gains came from 1993 to 1997. Remove these 5 years and the S&P has a negative return for the other 26 years.


If you are investing in Mutual Funds (which typically do worse than the S&P), you have done even worse, making this a no brainer. You are correct to SELL IN MAY AND THEN GO AWAY (unless of course you have no where else to invest that pays more).



THE GOOD MONTHS – November thru April


Now in the next chart you will find the gains/losses of the S&P 500 from the beginning of November to April. This is the time you are supposed to be in stocks, according to the Sell In May And Go Away trading rules.

YEAR START END RETURN
1987 251.79 261.33 3.79%
1988 278.97 309.64 10.99%
1989 340.36 330.80 -2.81%
1990 304.00 375.34 23.47%
1991 392.45 414.95 5.73%
1992 418.68 440.19 5.14%
1993 467.83 450.91 -3.62%
1994 472.35 514.71 8.97%
1995 581.50 654.17 12.50%
1996 705.27 801.34 13.62%
1997 914.62 1111.75 21.55%
1998 1098.67 1335.18 21.53%
1999 1362.93 1452.43 6.57%
2000 1429.40 1249.46 -12.59%
2001 1059.78 1076.92 1.62%
2002 885.76 916.92 3.52%
2003 1050.71 1107.30 5.39%
2004 1130.20 1156.85 2.36%
2005 1207.01 1310.61 8.58%
2006 1377.94 1482.37 7.58%
2007 1549.38 1385.59 -10.57%
2008 968.75 872.81 -9.90%
2009 1036.18 1186.68 14.52%
2010 1183.26 1363.61 15.24%
2011 1253.30 1397.91 11.54%
2012 1412.16 1597.57 13.13%
2013 1756.54 1883.95 7.25%
2014 2018.05 2085.51 3.34%
2015 2079.36 2065.30 -0.68%
2016 2126.15 2384.20 12.14%

# of Winning Years: 24
# of Losing Years: 6
Avg 6-Month Gain Per Year: +6.67%

SUMMARY:

As you can see, the S&P 500 returns 4x better in the months of November through April than it does in the bad months of May through October.


More importantly, risk has gone way down. There are only 3 years with a big loss and the losses were in the range of 9% to 12% compared to 8% to 30% during the bad months.



CONCLUSION:

These 31 years of results prove that markets are not random and that they are cyclical and can be timed.


If you are invested in Mutual Funds, which typically under perform the S&P 500, that 1.77% gain in the S&P during bad months will quickly vanish leaving you with a loss. You may want to go verify this by checking the returns of your mutual funds during the bad months of the market. For a good evaluation examine a minimum of 10 years.


Taking your money out in the bad months and investing it in something that returns more than 3% annually would be a smarter option.


During the months of November thru April the S&P 500, on average, does 4x better than the bad months of May thru October.


Using this knowledge you can gain an extra edge by investing heavily in these months and lighten up or stop trading altogether in the bad months.

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