Investors may want to reconsider this age-old strategy, especially with the world continuing to face turmoil due to COVID-19.
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“Sell in May and go away” may be an old trading adage, but it still has undeniable appeal today.
The strategy is based on the idea that investors should get out of the stock market in May — presumably to head to the beach — and then return in November. Those “summer” months are typically more volatile, and many believe it’s easier to take a break than to deal with potential uncertainty.
But is “sell in May and go away” always good advice? Some would argue that the answer is “no,” especially during a year that’s been marked by incredible uncertainty and volatility, largely due to the coronavirus pandemic. Before taking an investing vacation, read below to learn what experts think.
Does it work to sell in May and go away?
The “sell in May and go away” idea gets traction every year, and it’s worth looking at why that’s the case.
A key reason is that the numbers appear to stack up. One oft-cited statistic is that from 1950 to 2013, the Dow Jones Industrial Average (INDEXDJX:.DJI) had an average return of only 0.3 percent from May to October compared to an average gain of 7.5 percent from November to April.
However, since 2013 the story has been different, with the summer period sometimes bringing market gains instead of the expected lower returns. As a result, some market watchers are now recommending that investors resist trying to time the market to avoid disappointment.
On the flip side, others have suggested that the right approach is to get even more specific and try to follow smaller cycles — for example, by targeting cyclical sectors from November through April, and then gravitating toward defensive groups from May through October.
The upshot is that while “sell in May and go away” may once have been an effective strategy, that’s not necessarily still the case today. And because the approach is aimed at investors with larger stocks in their portfolios, there are also sectors — such as junior mining — that it may never have applied to at all.
Speaking to the Investing News Network via phone, Mercenary Geologist Mickey Fulp said that based on his seasonality work related to the TSX Venture Exchange, it generally makes the most sense for those trading in the junior mining space to sell in April and then buy back in mid-August before the rally that tends to happen after Labor Day.
In other words, it’s usually best not to follow the typical “sell in May and go away” pattern.
How COVID-19 factors in this year
As mentioned, the “sell in May and go away” strategy is even more complicated this year due to COVID-19, which has sent global markets into turmoil as investors struggle to react.
Unsurprisingly, many experts focused on the broader investment space are suggesting that now is probably not the time to test out this trading pattern.
“A lot of my calls and conversations … are really quizzing me whether or not this is a ‘sell in May go and away.’ I just think that it’s way too soon to be jumping on that bandwagon,” said Brian Belski, chief investment strategist at BMO Capital Markets.
In particular, he noted that many companies have suspended their 2020 guidance for the time being, making it difficult to gauge trends right now. “So therefore, less about May 1, ‘sell in May and go away,’ but more about what the trajectory and the trend is,” said Belski.
For Fulp, the same holds true for the junior resource space in that it’s impossible to know what could happen next. “I would say that you need to be more cautious right now, because things are going up and going down — it kind of depends on what the price of gold does on a daily basis, which depends on what the US markets are doing. I think it’s a very tricky time,” he said.
At the moment, said Fulp, he personally isn’t buying much of anything. “I think it’s too early to get in,” he commented, adding that he considers cash a great place to be right now.
When asked what mining investors might look to as a trigger to potentially start buying, Fulp emphasized that the current uncertainty in the world makes it difficult for anyone to say. “We don’t have any idea how long this is going to go on,” he said.
The decision to sell in May and go away (or not) is an individual one. Each investor much make their own choice, and will ideally consider more factors than the ones listed above.
If you’ve already made your choice, we’d like to know what you decided. Will you sell in May and go away? Take our Twitter poll and let us know.
This is an updated version of an article first published by the Investing News Network in 2017.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.