Tuesday, May 4, 2010

Sell in May... Don't Go Completely Away

There is always lots of "Sell in May, Go Away" chatter this time of year. Marketwatch's Mark Hulbert (via Abnormal Returns) details why:

There are surprisingly strong statistical reasons for "selling in May and going away," many nevertheless find it difficult to actually do what the strategy calls for -- sitting on one's hands from now until Halloween.

It is especially hard to do now, in fact, with the bull market defying all odds and continuing to chug along. Money managers tell me that the worst crime that they can commit, at least in the eyes of many of their clients, is being out of the market when it is rising.
Agreed... and while EconomPic in no way, shape, or form advocates investing in the manner described below, it is interesting none-the-less. Rather than "Sell in May and Go Away", the chart below details the results of the "Secret Sauce" (i.e. Sell S&P 500 in May and then invest in the Long Government / Credit bond index, rather than sit in cash) vs a buy and hold S&P 500 strategy (note that these returns include reinvestment of dividends).

Why does this work?

I have no idea...

Source: S&P / BarCap