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How's "Sell in May and go away" working for you?

By Dian Vujovich

Gotta love Wall Street adages. Play the markets long enough and you’ll see that these investment tips/notions come with a “sometimes” caveat and don’t always prove profitable. But then again, no investment advice is carved in stone or always worth listening to day in and day out, week-over-week, month-to-month or year -to-year when you’re picking individual stocks or funds. Seems there’s only one that stands the test of long-term time: Investing means taking a risk. And not too many people choose to remember it.

Oh well, back to that “Sell in May and go away” adage. This year, maybe April was the month in which to sell. After all on the last trading day of that month, the 29th, all major indices had reached their bull market highs, according to InvesTech Research.Then again, maybe not.

Here’s a little history from that same source about how that adage come to be.

•The thinking is that nearly all stock market gains happen within the six months from November through April. And, that profits are few from May through October.

• What’s behind the sell-in-May thinking is historical performance: Since 1928 the S&P 500 has averaged a gain of 5 percent from Nov. 1 through April 30 while the gain from May 1 though October 30 has only averaged 1.9 percent.

• The “seasonality” of the performance has indicated that the winter periods are better investing periods than the summer, May to October, ones.

That noted, there’s certainly nothing horrible about those historical summer figures. A gain is a gain even if it’s only 1 or 2 percent, in my book. Seems as though, James Stack, owner of InvesTech Research agrees. In the May6, 2011 issue of his “Portfolio Strategy” newsletter he writes:” Over the last 83 years the summer period logged double-digit losses in only 13 years and all those instances were during bear markets. In spite of the bad reputation, nearly two-thirds of the May through October periods…saw positive returns, and 16 of those summer periods even logged double-digit gains…”

And there you have it, from Stack.

Those who read this blog regularly know that I frequently look at how the Dow Jones Industrial Average is performing and point out stocks in it selling under 20 bucks a share. At yesterday’s close (5/17/11) two stocks that have been part of that category for the past couple of years have moved ahead handsomely this year. Intel closed the day at $23.55 and Pfizer at $21.14.

Seems like Stack’s research points out something worth remembering: Before selling in May, make sure to check the market’s direction. Then ask, “Are the bulls in town or is it the bears?”

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