Sell in May and Go Away?

As May rolls around you’re bound to hear an endless number of pundits and market participants discussing the “sell in May” phenomenon.  CXO Advisory has an excellent data analysis of the sell in May theory.  In short, buy and hold beats “sell in May”.  So maybe we can all move past this silly seasonal pattern that adds little value to portfolios and seems to be nothing more than a regurgitated media story.

Here’s CXO:

The following chart compares on a logarithmic scale cumulative values of $1.00 initial investments for three strategies using baseline assumptions over the entire sample period:

  1. Buy and hold stocks.
  2. In stocks (cash) during May-October (November-April).
  3. In stocks (cash) during November-April (May-October).

In support of conventional wisdom, being in stock during November-April mostly beats being in stocks during May-October (terminal values $965 versus $55). However, buying and holding the index substantially outperforms both seasonal strategies.

For another perspective, we compare average six-month return statistics for the strategies.


In summary, evidence from crude modeling over the long run suggests that stocks mostly do better during November-April than during May-October, but (with reasonable assumptions about return on cash, dividends and trading frictions) buying and holding stocks generally outperforms a “Sell in May” market timing strategy.



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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. well, the question here isn’t stocks vs cash but rather overweight vs underweight stocks
    A better comparison will be against bonds for the same period.

  2. Sorry but the analysis here is fairly simplistic and possibly self serving. Simplistic theories can always be easily shot down because things are so dang complicated. But patterns do exist and some folks succeed in the long term. Sophisticated timing experts are out there that look at nuances in patterns and have had significant success over buy and hold (or more accurately having a firm buy and sell for you and reap fees). Bottom line is that the majority of investment firms do not beat indexes over the long term and that seasonal timing, when carefully applied over the last few decades, increases one’s wealth. It is not flashy but patterns of large gains then subsequent losses does not blow my hair back any more.

  3. Excellent! Still have lots of hair but can always appreciate a snarky comment! positive thoughts

  4. I can’t find the link now but someone on Motley Fool tested the “Sell in May” strategy only if coupled with a negative MACD signal as well, and if I recall that did very well.

  5. That’s what Stock Trader’s Almanac does. Waits for a MACD sell signal once April/May rolls around. I don’t know if seasonality by itself should be followed, but rather as a basis for other factors to make a complete system.

    Regardless, seasonality changes over time so tests need to be updated to get the correct parameters.

  6. I think it is correct to look at the last couple of decades, not way back to when the sun started burning. During the last couple of decades we have seen large increases in bonus payouts that increase disposable income during this time of the year. This can be seen from tax withholding data from the IRS. This does not include tax exempt IRA and 401k deposits which would also increase the amount of funds available for investments during the first quarter.

  7. I saw a really sharp comment from a guy on another blog today who said that if Japanese investors start leaving thier markets for others, like the US, it could cause a move that would trump any other factors, technical, fundamental, or seasonal. Not only increased demand for US stocks but an increase in dollar/yen. Fat pitch?

  8. You said: “if Japanese investors start leaving their markets for others, like the US, it could cause a move that would trump any other factors.” This may have already started. Or else hedge funds are front-running, assuming that this will happen. It might help to explain why equities are so strong this week after the very weak jobs reports last Friday and other weak reports. So this could be a bullish factor for US equities that trumps other considerations?

  9. It is ludicrous to hail Buy&Hold strategies based on a 150 year chart ! Sure, stocks gain in the “long run”, but who holds stocks for 150 years!

    It would be interesting to see these statistics separately for secular bull and bear markets, i.e, 1920-1929, 1929-1946, 1946-1967, 1967-1982, 1982-2000, 2000- 2017(that’s my guesss….).

  10. Funny, it seems as if most investment advice in the mainstream media is “nothing more than a regurgitated media story.” Thanks for your blog and I’ll keep reading Barron’s and PragCap to keep me out of trouble.