“There has long been a saying that you should sell stocks before the Summer lull and buy them back cheaply in the Autumn” — Paul Ebeling
The Wall Street adage “sell in May” dates back to the 1930s. It started in Great Britain, where the rhyme went “sell in May, go away, and don’t come back till St Leger’s Day” meaning a famous horse race that takes place in mid-September.
The theory was that the stock market’s returns over the Summer months are usually dismal so there is no point being in the market.
We are in a Bull Market, and it is tempting to say that with stocks so buoyant 1 should take profits and await a correction. On the other hand, the trend is our friend, and we are in uptrend.
The Big Q: Why try and scalp a Top, the market could go a lot higher yet and you would miss out?
The Big A: I say “leave it alone, is not wrong” because all the yrs we got bargains would more than compensate for the few yrs when there weren’t any.
Plus, selling could mean a taxable profit unless you are operating through some tax efficient vehicle such as a Sipp or ISA.
Plus, are investors so confident that they can re-enter this market in the Fall at prices that are not only lower than today’s, but also so much lower that it becomes worthwhile to take on an additional capital gains tax liability? The prudent answer is No.
So the wisdom behind the old adage no longer applies.
Markets no longer slow down over the Summer, and markets do not even sleep any more. With each passing year, the sell-in-May strategy becomes less and less relevant.
And by the way, history tells us that many stock market crashes happen in October, so perhaps sell in September and buy in November works better as a seasonal trading strategy.
Have a healthy day, Keep the Faith!