Equities - Sell in May and Go Away

Bits and Pieces

• In 1991, Michael O'Higgins looked at data from 1925 through 1989 and observed that 85% of the capital gains, excluding dividends, was earned in the Dow during the October 31st through April 30th time frame.
• 19 of the major world markets over the last 30 years which encompass 97% of the total market capitalization of world equity markets were studied. The result? The effect is pronounced. In every one of the 19 major markets studied, the greater part of returns for the year were concentrated in the November-April period. The findings were not insignificant. The unweighted average for the 19 markets was 10.5% during the November - April time frame, and just 1.4% for the May-October time frame.
• It is interesting to note how the 1980-present average gain for September has remained negative despite the fact that most of this period included a strong bull market.

London Telegraph excerpt:

Nobody can be quite sure why markets so frequently drop in late spring/early summer, or when the "sell in May" strategy originated. The first recorded written reference occurs in the Financial Times in 1964. But that is no guarantee that it had not been in wide circulation for some time.

 Douglas Eaton, who at 88 is thought to be what the old Stock Exchange would call the Father of the House, is still working as a broker at Walker, Cripps, Weddle & Beck. He says he remembers old brokers using the adage when he first worked on the floor of the exchange as a Blue Button, or messenger, in 1934. "It was always sell in May," he says. "I think it came about because that is when so many of those who originate the business in the market start to take their holidays, go to Lord's, and all that sort of thing."

What is surprising is that not only is "sell in May" a successful strategy, it is one which is shared across the world. On Wall Street, there is: "Sell in May and buy again on Labor Day" (the first Monday in September, after which the holiday season ends and Ivy League types are supposed to put away their white shoes for the winter).