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Sell in May and Go Away? Our Experts Weigh In

Our panel of market professionals discusses seasonality

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Look for Income in a Sideways Market

VLUU L200  / Samsung L200By Charles Sizemore, The Sizemore Investment Letter

The language of Wall Street is infused with pithy maxims. “Don’t frown; average down.” “The trend is your friend.” And perhaps most relevant to us at this time of year, “Sell in May; go away.”

The last one is perhaps the most dangerous because, at least for the past several years, it has held true. Since 2010, we’ve had strong first quarters followed by volatile, choppy springs and summers.

VIDEO: See Charles discuss “Sell in May” with InvestorPlace’s Jeff Reeves.

But it is important to not be fooled by randomness here or, more accurately, be swayed by the recency bias.

“Sell in May, go away” is a losing strategy if you are basing it on seasonality alone. In any given year, there could be legitimate reasons for selling in any particular month, but selling because it is a particular month is sloppy analysis that will lead to subpar results.

So, what about this year? After the great start we had, I’m not expecting much from the next quarter. And in fact, given that the market has traded sideways since mid-March, you could argue that we are currently in a mild correction.

But any weakness here should be used as an opportunity to put new funds to work. There is never an “ideal” time to invest, but I like to see valuations that are modest and sentiment that is lukewarm at best. Today, both of these conditions are in place.

I’ve recommended income investments such as dividend-paying stocks and master limited partnerships as the best way to generate returns in a sideways market. If you haven’t loaded up your portfolio with them yet, do so on any weakness. For “one-stop shops” I continue to like the Vanguard Dividend Appreciation ETF (NYSE:VIG) for dividend-paying stocks and the JP Morgan Alerian MLP ETN (NYSE:AMJ) for MLPs. I own both personally and in client accounts.

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