The saying ‘sell in May, and go away’ is a well known Wall Street saying. The basic premise is that you want to own equities from the end of October through to the end of April. You then, ‘sell in May….’. If you are new to the markets, or even if you are more seasoned it can be easy to overlook the wisdom of that short phrase. So, here is a quick snapshot of the S&P500 over the last 71 years.
Buying from October – April
You can see on the chart above that holding the S&P500 from October 31 through to April 30 gives an average return of +6.27%. If you had taken this each year for the last 71 years it would have given you an annualised return of +13.04%. The win ratio would have been 77.14% and the maximum profit would have been 24.48%.
Buying from May – October
Now compare this to if you bought the S&P500 in May and held until October 31.
You would have had an average return of only +1.17%. So you can see that the S&P500 clearly sticks to the rule that it is better, over the long term, to sell in May and go away. Statistically, buying stocks at the back end of October is a great time to buy. This is also matched by large fund flows around this time, so this is the reason for the gains in the S&P500 over this time of the year.