Saturday , 19 August 2017


Should I Have Sold in May and Gone Away?

Sold in May and Went Away: Now It’s Time to Buy

…After the volatility in the markets [recently] I decided to take a look at the major indices to see how accurate the “sell in May and go away”  [i.e. “buy in on November 1st, and sell out the last trading day of April”] trading philosophy was in protecting investors this year [and] was astounded [to see] that all three indices (the Russell 2000 Value Index, the S&P 500 and the Dow Jones Industrials) had highs on April 29th and have not hit those highs since. [With what has happened in the markets lately, however,] might it be time to get back into equities? Words: 695

So says Timothy O’Rourke in an article* he wrote for www.SeekingAlpha.com which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. O’Rourke goes on to say:

If investors sold in May and went away they would have missed most major market corrections. A table on Wikipedia (here) shows that of all the stock market crashes/corrections, investors would have been protected from all but two minor crises if they had “sold in May and gone away”.

What Should We Do Now?

After accepting the “sell in May and go away” philosophy, there is one nagging question for each of us — what do we do now, on August 14th (the time of writing)? You inevitably fall into one of two groups – you sold in May, or you didn’t.

If you have not cashed out your equities I would leave your portfolio unchanged and wait for the market to improve before you re-allocate. I do not think that the underlying fundamentals in the economy have changed significantly over the last couple of weeks or months. Risk of default on sovereign debt has increased, and fears gripping those investors in that debt have spilled over into the stock market. Once investors take a hard look at equities and see that the underlying fundamentals have not changed, the stock market will take back its recent losses.

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If you did sell in May, it might be time to get back into equities. I am not sure where you put your money when you cashed out – municipal bonds, preferred stock, CDs, or just left it as cash – but the upside in equities after recent market declines promises a higher yield than most other investments. [Below are 2 further easons to seriously consider getting back into the market earlier than usual this year.]

  1. This upside potential in the stock market has nudged a record number of insiders to start buying in all sectors of the market. As reported on Barron’s two days ago, last week was the biggest week for insider buying since March of 2009. It should not go unnoticed that March of 2009 was the bottom of the bear market before the recent bull market run. The insiders are telling us, through thier purchases, that they believe the market will turn around. You can read the whole blog post at Barron’s here.
  2. The Iowa straw polls officially kicked of the election season last week [and] it has now become [in] everyone’s best interest to put forth their best ideas to spur the economy, grow GDP, and pass legislation that promote job creation.

Conclusion

The “sell in May” philosophy in behavioral finance was well worth heeding this year, with major market indices shedding as much as 13.5% since April 29th. With the markets losing as much as they have, the time to buy has arrived. Inside buyers are buying stocks in record numbers, and it is time for us to buy as well.

*http://seekingalpha.com/article/287224-sold-in-may-and-went-away-now-it-s-time-to-buy?source=email_macro_view

Editor’s Note:

  • The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
  • Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.