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Prudent Portfolio: Sell in May and Go Away, a Quaint But Outdated Adage

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Peter Chieco

By Peter Chieco

If you pay attention to the stock market and perhaps have some investments, you may have heard the saying “Sell in May and go away.”

Generally speaking, there is a belief that the months between May and October can be difficult for stocks, while November to April can be good. However, just as there is no such thing as “free money,” there is no one-size-fits-all outline for investing.

The phrase is believed to have originated from an old English saying, “Sell in May and go away, and come on back on St. Leger’s Day.” This refers to the custom of aristocrats and the business class leaving London and taking up residence in the country for the summer. They returned in time for the St. Leger’s Stakes, a thoroughbred horse race held in mid-September.

Gut instinct alone tells us that leaving our business and financial affairs languishing for six months may not be the best strategy. In the six-month period from November 2017 to April 2018, for instance, the stock market started out doing very well then ran into a wall. The Dow Jones Industrial Average’s highest close occurred on Jan. 26, 2018, when it hit 26,616.71.

By February, the market had dropped more than 10 percent, putting it into correction territory and increasing the fears of investors who also had to deal with rising interest rates and inflation worries.

From that point on, the Dow was unremarkable until Mar. 22, when it suddenly dropped 724.42 points, to 23,957.89. It fell another 500 points on Apr. 3. This, mind you, was during the time of year that the market was supposed to be doing its best.

Before the Dow hit its record high in January, it had reached 96 record closing peaks since the 2016 election. Investors were optimistic about the potential approval of business-friendly legislation and other job-boosting measures. Various initiatives drew similar market support, putting money back into the economy, which also made the market attractive to foreign investments. Yet, investor confidence was short-lived and quickly faded as the market headed south.

Looking at the market’s ups and downs from 2000 to 2017, we find that there are numerous instances of the market trending down during the winter months and back up during the summer. In 2003, for instance, and again in 2009, the market took major hits in the fall and winter months and improved in the summer.

Because of the old phrase, some investors are now asking themselves if they should avoid stocks altogether until November. Frankly, even though there still are some days when the market seems to be walking a tightrope, or is uncertain at best, there is likelihood for overcoming the next six months – and beyond.

Long-term statistics may suggest that the May to October period is not as robust as the rest of the year, but it also should be noted that some impressive rallies in recent history took place in the summer. Basically, the record is mixed.

Maybe it made sense long ago to leave town for a couple of months and let business languish while enjoying a season-long holiday. But really, how many of us can afford to take off an entire season these days? And do we want to parallel our investment activities, regardless of the time of the year, with preparations for a major wagering event?

Determining the best time to invest, including whether to buy or sell, involves the same diligence and research that we put into selecting the companies or sectors that provide the best opportunities. As for me, I would never advise an investor to adjust a long-term investment plan based on potential seasonal varieties.

Even though we had volatility recently, investors should be laser-focused on meeting long-term targets with goals-based wealth management – regardless of how the market is moving day to day.

If we want the best outcomes and the best decisions, we need to look at the big picture – and beware of outdated adages that no longer apply.

Peter Chieco is a financial adviser with the Wealth Management Division of Morgan Stanley in Greenwich, Conn. He can be reached at 203-625-4897.

The information contained in this interview is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Dow Jones Industrial Average is a price-weighted index of the 30 “blue-chip” stocks and serves as a measure of the U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods. An investment cannot be made directly in a market index.  Information contained herein has been obtained from sources considered to be reliable, but we do not guarantee their accuracy or completeness.  Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney, LLC, member SIPC. CRC 2143195 06/18.


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