Sell in May and Go Away???

[PhillipJFry]

http://business.financialpost.com/2012/04/18/does-selling-in-may-really-work/

Makes me wonder what other rules people use. Furthermore, is there some sort of pattern? I remember people saying that there is a pattern on how the markets in general move up and down in cycles.

http://www.whichwayhome.com/index.php/real_estate/cycles.html

If the following holds true, buy when the cycle is at the bottom and sell when it reaches the peak of the cycle. Technical Analysis?

I feel that the stock market is a game where you try to outsmart the other traders by using some unorthodox method for buying and selling stocks. In other words, proprietary trading method.

I would like to hear your expert analysis :)

[gomyone]

...I've been using the "sell in May (or more appropriately March) and go away" rule over the past three years for some of my "non-core" stocks and its worked very well. In the current environment of global deleveraging which has caused excess market volatility, a buy and hold strategy for most equities will get you nowhere and even worse, could put you underwater. Better to take gains off the table when they happen - which for whatever reason (maybe fund flows, taxes etc) seems to be during the first quarter. In this environment, the only stock I will buy and hold are solid dividend-oriented stocks that generate real income. This doesn't necessarily mean stocks with high yields, it means the ones that have the best track record and potential to grow dividend payouts. So far this definitely includes the banks and some other financials.

TO be honest, as long as the global economy is full of volatility and interest rates are near 0, the old buy and hold couch potato strategy of sitting on 60 equity and 30 bonds will be useless, if not downright dangerous...

[Jon Lai]

Would you still do it if you were down? :P

I think stats showed it's been higher than 50% over the years but I'm not sure if it's something you should abide to. At least, for the index it is, haha.

[Mark77]

I'd be cautious about investing based on any theme suggested by television commentors. And if gomyone's belief, that there is a consistent and tradeable pattern had any truth to it, certainly there would be a high number of funds that would be jumping in to take such a gain.

The truth is, most active fund managers/traders can't generate any positive alpha, no matter how much fancy economic analysis they throw at the markets, based on trading itself. Buying and holding essentially the index, by definition, nearly always generates a positive alpha versus the 'average' fund portfolio.

At current interest rates and market prices, its only a matter of time before there's some explosive moves in the market, especially since volumes have dropped off considerably. Canadian firms' earnings are rock-solid with plenty of room for growth (just build that darn Keystone pipeline already!), yet the market still trades 20-25% below 2008 levels. The after-tax earnings yield is an unprecedented >600bp over 10-year GoC bonds. There is a very real risk that you sell off your portfolio in May, come back in September, and find that it costs 20-30% more to buy back in.

[Sylvestre]

I don't explicitly follow it, but I do have trailing stops and they tend to get hit at the 2nd half of the year. More often than not, buy-back is in Dec, when bigger companies are cutting their losses. I don't purposely track it, but tends to follow that pattern.

[gomyone]

Would you still do it if you were down? :P

I think stats showed it's been higher than 50% over the years but I'm not sure if it's something you should abide to. At least, for the index it is, haha.

...nope. The only reason why I've been doing this is just to realize the gains that seem to have consistently come up in the first quarter. Rather than being greedy, I'll take profits when they look good and meet my targets. Unlike my house, I have no reason to love my stocks (except for my core dividend portfolio) so happy to sell if it looks right. I also have personal (tax) reasons for taking gains in Q1 rather than Q4, so it just tends to work out that I am following this seasonal pattern.

On another note, I don't really know if there are any fundamental reasons why equities have been doing better in Q1 (or for that matter Q4) of late. And yes, you would think the market would arbitrage any seasonal pattern away. One explanation for this seasonality could certainly be fund flows but I think it actually has more to do with coincidence and the crazy way that information flows across the world these days. When a "bad news events" hav comes out anywhere in the world over the past few years (US debt downgrade, Greece debt problem, European financial crisis, tsunami, bleak US job reports) - they've all seemed to occur on or after March. Risk suddenly goes off, the market panics and stocks fall by more than they should. When the market realizes the sky isn't falling, they risk is back on and the market rises again by the end of the year. It lands up resulting in some extreme volatilty but I've been lucky enough that my personal circumstances have allowed me to benefit from that...

[wm009]

I'll be buying in May, June, July, August, September, etc...

[S5]

I'll be buying in May, June, July, August, September, etc...


LOL, right on.

[PhillipJFry]

On another note, I don't really know if there are any fundamental reasons why equities have been doing better in Q1 (or for that matter Q4) of late. And yes, you would think the market would arbitrage any seasonal pattern away. One explanation for this seasonality could certainly be fund flows

http://seekingalpha.com/instablog/284362-jeff-pierce/431341-is-more-window-dressing-coming

This may explain more of what is going on. A mutual fund needs to submit a report of how the fund was doing during the quarter. If the fund does badly, the manager may sell the losers and buy the winners to make it look good. The fund lost money, but the stock picks look good.

The other thing that comes to mind is RRSP contributions. Maxing out one's RRSP with mutual fund contributions has to go somewhere. It is something I read somewhere where open-ended funds are bad for that reason. They are open and can take deposits and withdrawals anytime. Sitting on too much cash is not good for mutual fund returns, therefore, managers invest it. Figuring out what to sell to meet redemptions can also pose a problem.

I am pretty sure some people do take their tax refunds and invest it also.

[gomyone]

http://seekingalpha.com/instablog/284362-jeff-pierce/431341-is-more-window-dressing-coming

This may explain more of what is going on. A mutual fund needs to submit a report of how the fund was doing during the quarter. If the fund does badly, the manager may sell the losers and buy the winners to make it look good. The fund lost money, but the stock picks look good.

The other thing that comes to mind is RRSP contributions. Maxing out one's RRSP with mutual fund contributions has to go somewhere. It is something I read somewhere where open-ended funds are bad for that reason. They are open and can take deposits and withdrawals anytime. Sitting on too much cash is not good for mutual fund returns, therefore, managers invest it. Figuring out what to sell to meet redemptions can also pose a problem.

I am pretty sure some people do take their tax refunds and invest it also.

...yup - as I mentioned above, fund flows have a seasonal element. But what's surprising is that this is not being discounted by the market. It may just be that the numbers over the last few years have been especially large because of heightened fears among investors (particularly retail investors), which has caused even more lumpy activity than is usual...

[Wing Nut]

I prefer the Warren Buffett system: Buy great companies and own them forever as long as they remain great companies. But maybe that's just me.

[Terrific_Deals2k8]

Sell in April before May and go away ;) Because all the FI's will want to exit their bigger gains by May, in order to avoid the huge declines. Likewise, buy in August/September and ride the upward wave for 8-9 months.



http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=spx&uf=32&type=4&size=4&sid=3377&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=11&rand=573824573&compidx=aaaaa%3a0&ma=4&maval=50&lf=268435456&lf2=2&lf3=4&height=981&width=1045&mocktick=1

[Terrific_Deals2k8]

I prefer the Warren Buffett system: Buy great companies and own them forever as long as they remain great companies. But maybe that's just me.

Even great companies are susceptible to market timing. Why ride the wave down when you can exit and buy-in again at a lower price?... :)

[wesboag]

Even great companies are susceptible to market timing. Why ride the wave down when you can exit and buy-in again at a lower price?... :)

Good luck with that timing.

[gomyone]

Good luck with that timing.

The whole thread is about timing and there has indeed been some seasonality to performance the last three years. Not saying it will persist but I might also start to do some buying in Sept and Oct again, if only because a number of good companies look pretty cheap after having been beaten up (and I think they'll continue to be beaten up over the summer). My "strategy" will continue to be selling off "non core" holdings (ie non dividend stocks) in March. Not saying this strategy is full proof, but it's worked well the last two years.

[rfdrfd]

I prefer the Warren Buffett system: Buy great companies and own them forever as long as they remain great companies. But maybe that's just me.

What we don't hear is Warren Buffet also has options that hedge his own stock buying. So he could be betting against himself, and is safe either way.

So don't believe everything you hear.

[angelok]

I prefer the Warren Buffett system: Buy great companies and own them forever as long as they remain great companies. But maybe that's just me.

I agree with you. I always change BNN when one of these "Technical Gurus" come on to preach their BS. :D

[ccyk]

too many warrant buffett wannabes and there is only one warrant buffett.
His method only works for him. average person should avoid to be him imo.