Brett Arends's ROI

May 4, 2021, 2:41 p.m. EDT

If you ‘sell in May,’ don’t go away

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By Brett Arends

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Ignore where the market ends up on October 31. The real opportunity occurs at some point during the six month period.

There has almost always been a “summer selloff.” In 105 out of 120 years, or 88% of the time, the stock market has posted a decline at some stage in the six months after May 1.

So in almost 9 years out of 10, someone who sold their stock funds at the start of May was able to buy them back more cheaply during the next six months.

The average decline is 8%. That’s measured from May through the bottom of the slump.

In more than half of all years, the Dow Jones has fallen at least 5% during the summer lull, and in nearly one year out of three it has fallen by double digits.

These, of course, included such greatest hits as 2008 (a crash of 37%), 2002 (28%), 1987 (24%), 1907 (32%), and, of course, our old friend the catastrophe of 1929-32.  Nearly all the terrible carnage of 1929-1932 took place during the summer months.

Weird, but true.

An average selloff of 8% is not small potatoes. Over 20 years, someone who timed such a move perfectly every time would earn a remarkable 400% return.

If the stock market’s past is any guide to the future, the really clever move would be for us to sell our SPDR S&P 500 ETF /zigman2/quotes/209901640/composite SPY -1.25% , Vanguard Total Stock Market Index Fund /zigman2/quotes/202876707/realtime VTSMX -1.33% or similar this Monday…and then hang around for the sale. We’d buy back our stock fund back either on Hallowe’en, or when the market has fallen, say, 5%—whichever comes first.

All the years we got a bargain would more than compensate for the few years when there wasn’t one.

On the other hand, if the stock market’s past isn’t any guide to the future, then pretty much everything our financial adviser tells us is nonsense anyway.

US : U.S.: NYSE Arca
$ 400.59
-5.09 -1.25%
Volume: 74.20M
Jan. 30, 2023 4:00p
US : U.S.: Nasdaq
$ 97.93
-1.32 -1.33%
Volume: 0.00
Jan. 30, 2023

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