Wednesday, April 18, 2012

Sell in May and Go Away This Year?

One of the oldest adages on Wall Street is, "Sell in May and Go Away."  This is because of the overwhelming performance differential over the decades during the October to April periods compared to the May to September periods.  If one had the means, it often would have been worth it to cash out of the stock market on April 30 (and go on a long vacation?) and come back on September 30.

This is due in part for two reasons.  One, the biggest stock market declines have occurred in September, and two, the October to May period has seven months in which to earn returns, versus the five months from May to September.  It is a bit surprising, though, that October is included in the strong periods, since some of the biggest declines in history have occurred in October.

With stocks off to an exceptionally strong start this year, more than a normal year's worth of gains have already occurred.  Particularly with the widespread optimism reflected in sentiment surveys until last week's modest market correction, some caution is appropriate.

I always like to have some cash available for unanticipated opportunities, and with the 25-30% rebound in stock prices over the prior six months, greater selectivity in making new purchases is appropriate.

Steve Lehman

S & P 500:  1385

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