Can the “Sell in May and Go Away” investment strategy really outperform the market, or is it just an old wives’ tale? Buckingham's Chief Investment Officer Kevin Grogan explores this myth and shares why we don’t advocate this tactic.
Recorded August 29, 2023.
Kevin Grogan: One of the more persistent investment myths is that you can outperform the market by selling stocks in May and then waiting until November to buy back into the market. And the kind of cute rhyme that goes along with this strategy is “Sell in May and Go Away.”
Is This a Myth or Practical Strategy?
Kevin Grogan: And while that might sound kind of silly on the surface, from time to time, you’ll actually see market commentators recommend or advise that investors follow that strategy. As an example, the CIO of Morgan Stanley’s wealth management business argued that it might be a good strategy here in 2023. And like most myths, it starts with an element of truth. It’s true that stocks have provided greater returns from November through April than they have from May through October, if you look at the historical record.
Getting Out of the Market is Not (Usually) a Wise Strategy
Kevin Grogan: However, even in the May through October period, stocks have outperformed cash historically. So getting out of the market is not a winning strategy. It did work in 2022, however, as we saw for the full period of 2022, stocks delivered negative returns a bit and they also delivered negative returns in that May through October period. But that was the first time the strategy actually worked since 2011. And in terms of the results so far here in 2023, the S&P 500 returned 8.4% from May 1st through August 8th, and T-Bills returned 1.4% over that timeframe. So investors who took this advice would have underperformed by 7% over this timeframe. And that underperformance is before even accounting for the tax costs and the trading costs associated with selling all of your stocks at the beginning of May. And the bottom line here is that if you in order to believe that stocks should produce mechanically lower returns than T-Bills from May through October, you would also have to believe that for some reason, stocks are less risky than T-Bills, just due to the period of the year. And this is really kind of a nonsensical argument. And if you have someone who’s giving you advice that is just kind of that absurd on its face, I encourage you to ignore whatever other advice they might be giving you as well. If you do have any questions on anything I’ve covered in today’s video, please don’t hesitate to reach out to your advisor.
For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third party data and may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. The time frame chosen because of the dates of available data. The inception of the AIEQ ETF was 2017. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. All investments involve risk, including loss of principal. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this information.