01/11/2014 00:56:56 Free Membership Login

Sell In May And Walk Away : how true is this?

CNN states that it turns out that over the past 50 years, from the end of October to the end of May the S&P 500 index has gained a cumulative 2,806 percent. That’s not as huge a number as it may seem at first glance — on a per year basis it comes to 7 percent. But for a little more than a half year’s work for each year, it’s better than a sharp stick in the eye.
Now, what would happen if you bought in May and sold at the end of October? The S&P 500′s cumulative gain over that period for the past 50 years is 24 percent. On a per year basis this comes to just 0.4 percent.

the blog http://www.investmentpostcards.com/ takes on the adage Sell in May and Walk Away by giving us these nice visual graphic illustration.

 

 

 

 
Simply looking at the graphs above, Selling in May will actually help you avoid subsequent dropping months as recorded since the year 1950s. April seems to be the usual top, and perhaps the human greed factor will make one hold until one is already experiencing losing.

The difference is quite significant. The good six-month period shows an average return of 7.9%, while the bad six-month period only shows a return of 2.5%. The bad six months is easily identifiable to be the months from May to October.

This will eventually give way to the so called santa claus rally and January Effect. In short, the seasonal behavior of markets can be taken advantage upon.

You don’t have to know the reason behind the pattern, you just have to accept that once there is just learned behavior — once a pattern takes hold, people are apt to follow it

Comments

  1. very intresting!

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