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another problem is, transaction costs and taxes from selling and buying would probably eat up your gains
I sold in early March. To me it seems like more of a gamble to be in than out at this point.
I don't think this factors in the cost of selling and buying all your stocks twice a year.
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.
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 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…
[1] http://www.msci.com/ [2] http://www.ftse.com/
If you're interested in getting hold of historic tick data you could go to a data provider (for a price) or perhaps more convenient would be to see if you could get access to a Bloomberg terminal.
Academics that research this area, especially questions of policy and market efficiency of both market pricing and funds, can be extremely open about their work, and are often keen to share.
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]."
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 Another consideration is taxes. The short-term gains produced by selling after 6 months are taxed at normal incom…
There is another advantage: during 6 months of the year you have 0 risk.
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 Another consideration is taxes. The short-term gains produced by selling after 6 months are taxed at normal incom…
Aren't dividends figured in to the historical prices anyway, though? Via adjusted closing prices?
http://www.westonbeckett.com/posts/sell-in-may.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.
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 f…