
Sell in May, and go away? - theocs
http://www.agoraopus.com/blog/2015/sell-in-may-and-go-away
======
dustcoin
This analysis is only looking at the price of the S&P 500, not the total
return. An investor that sits out half of the year will miss out on about half
of the dividends paid, which are always positive.

EDIT: Here is a graph highlighting how important including dividends is:
[https://i.imgur.com/YZSq6K3.png](https://i.imgur.com/YZSq6K3.png)

Another consideration is taxes. The short-term gains produced by selling after
6 months are taxed at normal income rates (or slightly higher), as is the
interest from the "risk free" interest-paying investment held the other 6
months. Long-term capital gains and dividends are taxed at favorable rates.

~~~
tunesmith
Aren't dividends figured in to the historical prices anyway, though? Via
adjusted closing prices?

~~~
mortehu
There are several versions of the S&P 500. The version used here is the price
index, which doesn't include dividends. The total return index, ^SPXTR[1],
does account for dividends.

[https://ycharts.com/indices/%5ESPXTR/level](https://ycharts.com/indices/%5ESPXTR/level)

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howeyc
> The question then is: What do you do with your cash when it’s not invested
> in the stock market? Assuming we put them in high caliber (“risk-free”)
> interest bearing fixed income instrument they would still give us a return
> on our investment while we’re out of the stock market. Based on data from
> various historical sources I’ll stick with an average annual geometric risk-
> free rate of 5%.

I must be misunderstanding this, otherwise WTF??? Tell me where I can get this
risk-free 5% rate.

~~~
dustcoin
The author is claiming 5% is an historical average, which is plausible because
in past decades, both interest rates and inflation were much higher.

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kolbe
He fit some time periods that happen to avoid the 87 crash and most of the
2008 crash. It's funny, when stats tell you this story, it feels more
compelling than some instruction to just avoid the two largest market crashes
since 1929, but in reality neither are telling you anything.

If you chop up financial data sets enough, you can always find some generally
defined subsets that perform better than the whole set.

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guelo
From the graph it looks to me like the entirety of the gain comes from
skipping some of the 2008 financial crisis. [http://www.agoraopus.com/wp-
content/uploads/2015/04/Sell_in_...](http://www.agoraopus.com/wp-
content/uploads/2015/04/Sell_in_May_vs_Buy_and_Hold.png)

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PhantomGremlin
Mark Twain allegedly quipped:

    
    
       OCTOBER: This is one of the peculiarly dangerous
       months to speculate in stocks in. The other are
       July, January, September, April, November, May,
       March, June, December, August, and February.
    

Still relevant 100+ years later.

------
Lorento
Shouldn't he test his model on another dataset besides the one used to
generate it? Maybe it's overfitted. It would have been nicer to see the whole
thing developed with only a decade or two of data, then shown to work for all
the other decades too.

~~~
kolbe
Correct. This is quantitative analysis 101. A training set and testing set.

------
zaroth
I moved a large portion of my IRA to cash towards the end of last year, there
were just too many red flags and unknowns, and seemingly unexplainable
reactions to the daily news cycle, and the market had performed just so well
over the last several years, it seemed like a peak would have to be near.

Of course, what actually happened is I managed to miss a 15% bump in IJT, a 5%
bump in VT, a 6% bump in IYY, and about flat in GLD. The two stocks I held
directly however did go down about 10% since selling.

So yeah, the two most basic pieces of advice; you can't time the market, and
don't hold individual stocks (without spending the time to actively manage
your portfolio), both rang quite true for me at least the last 6 months. I
just haven't gotten back in, because I'm sure the day I decide to do that will
prove to be the actual peak. :-/

~~~
MarkSweep
You can do dollar cost averaging[0]: buy chucks over time instead of all at
once. Of course this increases commissions and other transactions costs.

[0]:
[http://en.wikipedia.org/wiki/Dollar_cost_averaging](http://en.wikipedia.org/wiki/Dollar_cost_averaging)

------
jtoll
A few months back, I performed a two part analysis of this very subject.

[http://www.westonbeckett.com/posts/sell-in-
may.html](http://www.westonbeckett.com/posts/sell-in-may.html)

[http://www.westonbeckett.com/posts/sell-in-may-
redux.html](http://www.westonbeckett.com/posts/sell-in-may-redux.html)

In short, while returns for the May to October period may on average be less,
they are positive and if anything, the returns for this period have been
increasing. The one notable exception being the incredible selloff in 2008.
Taxes are a more consistently important issue to consider.

------
zhte415
I heard this many years ago. Asking a fund manager colleague, she mentioned it
was mostly a fear of liquidity, not a question of HFTs, but should bad news
strike, the markets she tended to invest in didn't hold up well (or were not
perceived to hold up well, perception causing reality) and price falls were
irrationally large, due to this lack of liquidity.

Now, a fund manager that tends to hold onto a stock when its falling by
definition sees the falls as irrational, but this was confirmed by her
colleague that walked into the room. He added "what's really important is when
retail investors start buying, then that's really the time to sell [as after
the stock gets popular with the public, who's left to pump it up]."

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brey
I don't think this factors in the cost of selling and buying all your stocks
twice a year.

~~~
ketralnis
To ignore taxes and to assume that you're only holding an S&P500 index, it's 2
_years_ fee (let's say $10 * 2 * 20==$400). Kind of insignificant.

To not ignore taxes though it becomes more clear. If you literally sell every
May, you're never holding for more than a year. In the US at least you're
always paying short term capitol gains. This is the real killer here.

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MarkG509
By far, the worst month for me has always been March. Now that we've made it
to April, I'm planning to sit tight till after the Santa Claus rally.

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illyabusigin
Seasonal stock market tendencies are real. I created a website
(Seasonalysis.com) which quantifies these tendencies. Past performance is no
guarantee of future returns but the information gleaned can be incredibly
useful if combined with other indicators/analysis.

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vasilipupkin
Several problems: once you start looking at monthly data, you don't have
enough Mays to say with any statistical significance that May means anything

another problem is, transaction costs and taxes from selling and buying would
probably eat up your gains

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Uroboric
I sold in early March. To me it seems like more of a gamble to be in than out
at this point.

~~~
stevewilhelm
Depends on your time horizon.

~~~
jklein11
Not really... It depends on the basis of his intuition. If you knew some
details about the market that others did not it would make sense to act on
that information regardless of if you needed the money tomorrow or forty years
from now.

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OscarCunningham
I want to know what null hypothesis was used to generate those significance
results.

