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Sell in May and Go Away

Source: Wikipedia

Most investors are familiar with the old adage, “Sell in May and go away.” Like a lot homespun wisdom, this one does have numerical merit — at least statistically speaking.

For instance, from my take a couple years ago:

“According to the Stock Traders Almanac, if you went long the market on Nov. 1, 1972, and spent 37 years selling all of your holdings on April 30, then re-buying on Nov. 1 and doing it all over again, you would have earned an average annual return of 7.4%. If you would have done the reverse — buy in May and sell in November — your return would be a paltry 0.4% over the same 37 years.”

Now, history doesn’t always repeat itself, and if you would have sold in May 2012 or May 2013, you would have lost out on a lot of market upside. Still, the sentiment (and the strategy) will likely be operating this May, especially given the volatile year we’ve had in 2014. So, if you start to see some big selling in May, you might want to reduce exposure and take the summer off.

As of this writing, Jim Woods was long GLD.

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