IT COULD BE BEGINNING TO LOOK A LOT LIKE CHRISTMAS

IT COULD BE BEGINNING TO LOOK A LOT LIKE CHRISTMAS (OR YOUR OTHER FAVORITE WINTER SOLSTICE CLONED HOLIDAY)[i]

DATA SUPPORT OLD ADAGE “SELL IN MAY AND GO AWAY”.

Many readers are familiar with the old stock market adage “Sell in May and go away.” One source of this adage is that the big market players and traders spend the summer at Newport Beach or the Hamptons and do not move much money around until they return after Labor Day. These summer sideways markets are then followed by third quarter earnings warnings issues in September that further depress stock, and then the actual earnings reports in October.

Staying with this seasonal theme, we move through November, which is historically a little better month than September and October. In December we often have a little Santa Claus rally and move into the New Year with the January Effect. (Dude and dudettes, can the Author prattle off the stock market clichés, or what?) But all of this sounds little folksy and anecdotal for real financial and investment people.

IN GOD WE TRUST. ALL OTHERS BRING DATA.[ii]

Dorsey Wright and Associates recently compared Dow Jones Industrial Average (DJIA) returns for the six-month periods of the months of May though October with the returns from November through April[iii]. They basically split the year in half and tested one six-month period against the other period for DJIA performance. The study goes back to 1950 and includes 55-1/2 years of data, through October 31, 2005. The results are amazing.

The months of May-October produced a –0.05% compound return. If you had invested the hypothetical $10,000 in May of 1950, you would now have $9,728, or a loss of $272. Sell in May worked pretty well.

However, if you had invested only in the months of November through April, you would have had a compounded annual return of 7.38 %, or a total return of $4, 931%. The hypothetical $10,000 would now be worth $493,802. Working only November through April. Not a bad work schedule.

ONLY 21% OF NOVEMBER-APRIL PERIODS NEGATIVE

Only 12 of the 56 November-May returns were negative and only in 1969 and 1973 were period down by more than 10%. The last negative November-May period was 2000, with a negative return of –2.2%.

A 55-1/2 year period is a very representative sample. This period covers two Secular Bull markets (1950-1966, 1982-2000), a complete Secular Bear market (1966-1982) and the current Secular Bear Market.

In an upcoming post, the Author will talk about a couple of sector plays that may provide some good returns in the next few months and offer an opportunity to make a November-April play work to an investor’s advantage.

IMPORANT DISCLAIMER: This post is offered for informational purposes only. Sources of information provided are believed to be reliable, but are not guaranteed to be complete or without error. Opinions and suggestions are provided with the understanding that readers acting on information contained herein assume all risks involved. The Author may or may not buy or sell securities discussed in this post.

IT IS ALWAYS SOME HOLIDAY SOMEWHERE IN THE DESERT OF THE REAL!



[i] The Author wishes to be inclusive and include Chanukah, Kwanzaa, Boxing Day and any other festive December Day in the celebration of stock market gains. And we must also remember that major religions co-opted the pagan solstice holidays into their rituals and holidays, so many Western holidays double as pagan ritual days. So its all fun
[ii] This is an oldie but a goodie from the Author’s healthcare law and healthcare IT days. Healthcare cost containment was all the rage in the mid-to-late 1990s. If you had data that could demonstrate your cost-saving ability, you would find a receptive audience.
[iii] The Author does not know if these return calculations include dividends.