Sell in May, and go away?
agoraopus.com
Sell in May, and go away?
1–10 of 36 posts
Re: Sell in May, and go away?
#2This 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
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.
Re: Sell in May, and go away?
#3> 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.
Re: Sell in May, and go away?
#4> 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 th…
The author is claiming 5% is an historical average, which is plausible because in past decades, both interest rates and inflation were much higher.
Re: Sell in May, and go away?
#5I don't think this factors in the cost of selling and buying all your stocks twice a year.
Re: Sell in May, and go away?
#6By 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.
Re: Sell in May, and go away?
#7This 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 Another consideration is taxes. The short-term gains produced by selling after 6 months are taxed at normal incom…
Thank You!
Its ridiculous how many of the timing/tactical strategies ignore these factors because of the complexity, even though they introduce massive drag vs buy & hold.
With the amount of data available, we should be able to do these sorts of backtests fairly accurately. At some point I hope I can compile a bunch of open prices/distribution data sets for people to use. You can easily get, for instance, daily close and distributions for VFINX (Vanguard's S&P 500 fund) back to 1980, but its not neatly compiled anywhere. Trickier is classifying distributions (dividend/LCG/SCG), but again all the required data exists (Sadly it means manually trawling through Edgar)
Re: Sell in May, and go away?
#8He 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.
Re: Sell in May, and go away?
#9I don't think this factors in the cost of selling and buying all your stocks twice a year.
Given it's an analysis of the S&P500 you just buy/sell SPY and follow the index. Not that I recommend that, for reasons other people here have pointed out.
Re: Sell in May, and go away?
#10Seasonal 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.