What is 'Sell In May And Go Away'?

Sell in May and go away is a well-known trading adage that warns investors to sell their stock holdings in May to avoid a seasonal decline in equity markets. If a trader follows the sell-in-May-and-go-away strategy, the trader sells stock holdings in May and invests again in the equity market in November to avoid the typically volatile May to October period. Some investors find this strategy more rewarding than staying in the equity markets throughout the year. (Learn more by reading The Truth About "Sell in May and Go Away.")

BREAKING DOWN 'Sell In May And Go Away'

This strategy is based on the historical underperformance of some stocks in the six-month period commencing in May and ending in October compared to the six-month period from November to April.

Origination of the Phrase "Sell in May and Go Away"

The phrase sell in May and go away is thought to originate from an old English saying, "Sell in May and go away, and come on back on St. Leger's Day." This phrase refers to a custom of aristocrats, merchants and bankers who would leave the city of London and escape to the country during the hot summer months. St. Leger's Day refers to the St. Leger's Stakes, a thoroughbred horse race held in mid-September and the last leg of the British Triple Crown.

American traders who are likely to spend more time on vacation between Memorial Day and Labor Day mimic this trend and have adopted the phrase as an investing adage. Before 201, stock market patterns have supported the theory behind the strategy.

Do the Markets Drop in May?

From 1950 to around 2013, the Dow Jones Industrial Average has had an average return of only 0.3 percent during the May to October period compared with an average gain of 7.5 percent during the November to April period, according to Forbes. While the exact reasons for this seasonal trading pattern were not known, lower trading volumes due to the summer vacation months and increased investment flows during the winter months were cited as contributory reasons for the discrepancy in performance between the May to October and the November to April periods.

However, recent evidence from Investor's Business Daily shows that this seasonal pattern may not be the case anymore. According to Investor's Business Daily, If an investor had sold stock in May 2016, they would have missed some lucrative runs. The NASDAQ ended April 2016 at 4775.36; it closed higher in May and soared in late June. The NASDAQ rose by 55 percent from the end of June 2016 until the end of January 2018.

Alternatives to Sell in May and Go Away

Instead of selling in May, some analysts recommend rotation. This means that investors would not cash out their investments but would instead vary their portfolios and focus on products that may be less affected by the overall slow growth in the markets during the summer and early fall, such as technology or health. 

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