Robert Wickboldt on the Stock Market Adage ‘Sell in May and Go Away’

By  //  April 18, 2023

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“Sell in May and go away” is a saying that describes an investment strategy of buying stocks from November to April and then selling them in May and not reburying until October.

The Stock Trader’s Almanac popularized the method based on historical trends that demonstrated that those traders that followed the strategy would have received reliable returns since the 1940s, says Robert Richard Wickboldt III, a real estate investor and successful day trader in Houston, Texas. The trend was dramatic from 1990 through 2020. According to Fidelity, the S&P 500 index has gained an average of 2 percent from May to October but gained 7 percent from November to April during those years. However, the trend failed to hold in the 2020s.

Why Does the Divergence Occur?

Initially, agricultural trends influenced the financial markets, but that influence has waned recently. In modern times, the divergence has more often occurred because companies’ fiscal years are ending, and they are paying bonuses, he says. The April tax filing deadline may also contribute. Some experts also notice a trend they call the Santa Rally, during which all stocks tend to rise during the last weeks of December and the first weeks of January.

Should Investors Follow the Axiom?

Despite the saying and some historical evidence, Robert Wickboldt does not believe investors should necessarily follow the axiom. For one thing, historical patterns don’t necessarily predict the future. Indeed, sellers acting to follow the axiom can make the pattern disappear. If every seller tried to buy back their stock in November, they’d drive the prices too high for a profit by bidding against each other. 

Also, the stock market failed to follow the pattern in 2020. Instead, stock prices declined in February and March as COVID struck, then they only partially returned in October. The adage was also wrong for 2022, he said.

What Are Alternatives to “Sell in May?”

Investors could ignore the pattern altogether, believing it is no longer relevant to today’s stock market. 

Another alternative is to use rotation strategies. One such approach switches the mix in portfolios from primarily stocks to primarily fixed-income instruments in May and then switches the mix again in November. Another rotation strategy keeps most investments in the stock market in May but shifts them to companies in the defense sector. The defense sector traditionally has performed well from May through October. In November, the investor would rotate back into industries such as consumer discretionary, technology, industrials, and materials, which performed well from November to April.

A third alternative is to adopt a “buy and hold” strategy. A buy-and-hold strategy is appropriate for investors with long-term goals such as retirement, sending their kids to college, or saving enough money to buy a home.

The Bottom Line

Historical patterns are only one factor to consider when managing a stock portfolio. Investors also should weigh the merits of the “sell in May strategy” against those of rotating out of stocks or particular industry sectors in May. Investors also should consider their tax situation and individual goals, Houston resident Robert Wickboldt says.