“Sell in May”: time to spring clean your investments?

The “sell in May” strategy advocates dumping your stocks in early May, sitting in cash, and not buying back in until the St Leger Stakes horse race has been run in September. So is there any validity to the idea?

It's the month of May, which means that the investment press is pumping out the obligatory spew of articles on the wisdom (or otherwise) of adopting a "sell in May" strategy also known, in the US, as "the Halloween effect". The basic idea is that markets historically do better in the winter months (end-October to end-April) than in the summer months. Therefore, you should dump your stocks in early May, sit in cash (or short-term bonds), and not buy back in until pumpkin-carving season is over.

Is there any validity to the idea? Perhaps surprisingly, the data says "yes". Since 1950, according to Ned Davis Research, the S&P 500 index has gained an average of 1.4% (2.1% using the median average) between May and October, while from November to April it's gained 7% (6.6% median). The hit rate is better for the winter months too the market has risen four times out of five, compared with three out of five for the summer months.

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.