“Sell in May and go away” is one of the most widely touted Wall Street adages. It’s based on historical data going back decades that show summer and early fall to be the worst time of year for stocks, while the biggest stock market gains are made from November through April.
But does it really make sense to dump all of your holdings, pack your bags and head for the beach? Or, in the midst of this powerful bull market, is sell in May one of those investment strategies that’s just plain silly (and possibly lazy)?
We asked some of our experts to weigh in on whether they thought it would be wise for you to sell in May, or if they could offer some better investment strategies for the months ahead.
Presidential Cycle Trumps Sell in May
Investment Strategy: Growth stock investing focused on fundamentals
His take: They say “sell in May” because huge inflows of cash from pension funding comes in November and April. This pumps money into the market and creates the biggest surge for the indexes, but when May rolls around, the inflows decrease. If you only invest in index funds, selling in May might be your best bet. But if you buy individual stocks and want to make money in 2011, don’t take your money off the table this summer.
We’re in the third year of a presidential cycle, and every such year of this cycle has been up since 1955. The second and third quarters have proven to provide some of the biggest gains of the year, and this is why you really shouldn’t sell this summer.
Now, I expect that the market will get more selective post-May, but that actually works in your favor, because the big money will be chasing fewer stocks, and the profit opportunity will be amplified. Where’s the money going to go? Right into companies with strong earnings and solid fundamentals. Look for companies with strong sales, earnings and margin growth, because this it where the rally will be while the junk will be left in the dust.