{"id":37846,"date":"2013-04-26T11:54:40","date_gmt":"2013-04-26T15:54:40","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=37846"},"modified":"2013-04-26T11:54:40","modified_gmt":"2013-04-26T15:54:40","slug":"sell-in-may-go-away-is-terrible-advice","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/04\/26\/sell-in-may-go-away-is-terrible-advice\/","title":{"rendered":"\u201cSell in May, Go Away\u201d Is Terrible Advice"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

The language of Wall Street is infused with pithy maxims. \u00a0\u201cDon\u2019t frown; average down.\u201d \u00a0\u201cThe trend is your friend.\u201d\u00a0 And perhaps most relevant to us at this time of year, \u201cSell in May; go away.\u201d<\/p>\n

The last one is perhaps the most dangerous because, at least for the past several years, it has held true.\u00a0 Since 2010, we\u2019ve had strong first quarters followed volatile, choppy springs and summers.<\/p>\n

VIDEO: See Charles discuss “Sell in May”<\/a> with InvestorPlace’s Jeff Reeves. <\/p>\n

But it is important to not be fooled by randomness here or, more accurately, be swayed by the recency bias.\u00a0 I\u2019ll never forget a simple study that money manager Ken Fisher published years ago in The Only Three Questions That Count<\/i><\/a>.\u00a0 Using data back to 1926, Fisher calculated the average return of the S&P 500 by month.<\/p>\n

What did he find?\u00a0 Well, as it would turn out, May happened to be one of the least profitable months, with an average return of 0.30%, though February, at 0.26%, was lower.\u00a0 The only negative month was September.\u00a0 Interestingly enough, October\u2014which was the month of the 1987 Crash and the 1929 Crash\u2014had an average return of 0.62%.<\/p>\n

Yet the summer months of June, July and August were three of the most profitable months of the year, with returns of 1.37%, 1.87%, and 1.25%, respectively. July was actually the most<\/i> profitable of all months; even December and January, the two months believed by many investors to be the best, were lower at 1.78% and 1.69%, respectively.<\/p>\n

My point by now should be clear: \u201cSell in May, go away\u201d is a losing strategy if you are basing it on seasonality alone.<\/strong>\u00a0 In any given year, there could be legitimate reasons for selling in any particular month, but selling because <\/i>it is a particular month is sloppy analysis that will lead to sub-par results.<\/p>\n

So, what about this year?\u00a0 After the great start we had, I\u2019m not expecting much from the next quarter.\u00a0 And in fact, given that the market has traded sideways since mid-March, you could argue that we are currently in a mild correction.<\/p>\n

But any weakness here should be used as an opportunity to put new funds to work.\u00a0 There is never an \u201cideal\u201d time to invest, but I like to see valuations that are modest and sentiment that is lukewarm at best.\u00a0 Today, both of these conditions are in place.<\/p>\n

I\u2019ve recommended income investments such as dividend paying stocks and master limited partnerships as the best way to generate returns in a sideways market.\u00a0 If you haven\u2019t loaded up your portfolio with them yet, do so on any weakness.\u00a0 For \u201cone-stop shops\u201d I continue to like the Vanguard Dividend Appreciation ETF (NYSE:$<\/span>VIG<\/a>)<\/strong> for dividend-paying stocks and the JP Morgan Alerian MLP ETN (NYSE:$<\/span>AMJ<\/a>)<\/strong> for MLPs.\u00a0 I own both personally and in client accounts.<\/p>\n

SUBSCRIBE\u00a0<\/a><\/strong>to\u00a0Sizemore Insights<\/em>\u00a0via e-mail today. This article first appeared on TraderPlanet<\/a>.<\/p>\n

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