Unpacking the “Sell in May” Strategy: Fact or Folklore?

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Sell in May and go away works?

If you deal with the financial markets, you have surely heard the saying: ‘Sell in May and Go Away’, a strategy of selling all your stock positions on 1 May and buying them back immediately after Halloween, i.e. on 31 October.

The phrase “Sell in May and go away” is shrouded in historical mystery, with its roots believed to trace back to old England. Legend has it that this adage emerged in a time when stockbrokers, adhering to tradition, would embark on summer vacations in May and wouldn’t return to work until the arrival of September. In its original form, the saying went, “Sell in May and go away, do not return until St. Leger’s Day.” The significance of St. Leger’s Day lay in it being the final horse race of the season, signaling that the old-fashioned stockbrokers had no intention of resuming work until the racing season had drawn to a close.

This quaint saying has garnered credibility among investors, primarily due to the striking historical instances of stock market declines during the May-through-October period. These instances include the infamous Black Monday crash of 1987, the tumultuous post-Lehman Brothers crash in 2008, and the correction in August 2011, which followed the downgrade of the U.S. government debt rating. These events have lent weight to the notion that steering clear of the stock market during this traditionally turbulent period might be a prudent strategy.

Do stock market indices really fall at this time?

To do this, simply choose the number of years over which we want to calculate the statistic (in this example we will calculate over the last 20 years), then select the period we are interested in (i.e. 1 May to 31 October). To do this, we can select the dates from the calendar, or select the period directly from the graph by selecting the dates with the mouse. Here is the example below, on the S&P500 index:

The first thing we notice is that, in this selected period, the market trend has been positive. If we then look at the individual years (the data are available in the seasonality statistics of the forecaster) we realize that the saying ‘Sell in May and go away’ does not work! Following this strategy, in fact, we would only make a profit in five cases out of twenty.

In two of these cases (in the years 2015 and 2010), the performance was +1.37% and +0.19% respectively, therefore negligible.