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Sell in May? Maybe Not

By Dian Vujovich

There’s an old Wall Street saying, “Sell in May and go away.” The concept is based upon the performance of the S&P 500 and looking at those numbers over the past 50 years one may find some truth to the adage. This year, however, maybe it’s not such hot advice.

In the June 5th InvesTech Research Market Analyst newsletter, editor Jim Stack writes about the strategy then refines it.

First, he explains how the “Sell in May and go away” notion got its legs. The story goes like this: If two different investors, each with $10,000 to invest, where to plunk their monies into an S&P 500 Index Fund and one decides to make that investment in November and then sell it in May, that lucky lady would see her $10,000 grow to over $327,000. Provided, of course, she followed that six-month investment plan every year for the past 49.

The other investor, who chose to invest in the other six-month period and bought on May 1 and held through October 31, only saw his portfolio grow to $23,433.

Big difference! And as this example shows, there sure appears to be a seasonality to the performance of stocks in the market.

That said, Stack reminds his readers: “But wait. Before selling out and walking away from this market with the intention of coming back on November 1, there’s a little idiosyncrasy about this seasonality that you need to know: It doesn’t hold true immediately after a bear market or when a recession is ending.

Since Stack thinks that we’re headed out of our recession, based upon his research he suggests a new adage for 2009: “Sit tight in May, and not walk away.”

We’ll see.

For more about InvesTech visit http://www.investech.com .

To read more articles, please visit the column archive.

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