A familiar saying on Wall Street is “Sell in May and go away,” which means you should sell your stocks and move to cash until later in the fall.
There is evidence to back up this strategy. According to Doug Ramsey of Leuthold Group, since 1926 annualized stock performance from November through April has been 13.4%, or twice that of the 6.8% return of May through October. And there seem to be some practical reasons for it: More people, including all those Wall Street types, are on vacation during the summer, so are less likely to be actively trading.
But there are also many folks who disagree. Merrill Lynch says that going back to 1928, the month of May is up 57% of the time and June through August is up 63% of the time.
Columnist Mark Hulbert says the “sell in May” strategy only works during the third year of a four-year presidential term.
Sam Stovall of S&P Capital IQ says rather than sell all your stocks, it’s better to rotate into defensive sectors such as consumer staples and health care.
Other folks say that “sell in May” won’t work this year because the economy is healthy, earnings growth is strong, and the bull market is global.
So, what should you do? First, make sure you have a diversified portfolio so there is always something that is outperforming. Second, if you own some stocks that appear to be overvalued, there’s nothing wrong with taking a little money off the table. Third, don’t base your investing strategy on Wall Street slogans. Although there’s often a bit of truth in them, none of them work all the time.
And most important of all, enjoy your summer vacation!