Sell in May or Stay in May?


My friend Brooke Thackray recently covered the probabilities of a traditionally weaker market during this year’s “Worst Six Months” traditional period of seasonal weakness in his seasonal investing newsletter. His website, where you can subscribe to this newsletter, is

I told him that he had written a particularly interesting commentary on this months newsletter that I would like to reprint, to which he replied “Once in a while a million monkeys sitting at typewriters can produce good work. I am just one of those monkeys.”

Well, monkeys or not, I thought Brooke’s words worthy of reproducing to benefit the good readership of this blog:

In the past, I have written about both the removal of Federal stimulus and the Chinese contraction. The reason I am discussing tapering again, is that it is inevitable that at some point tapering is going to have a negative effect on the stock market. Yes, there are assurances that the policy will change if the economy warrants it and investors have been comforted. I am not so comforted, even by the dovish Yellen. Obviously the Federal Reserve and the government can measure changes in the economy, but it is difficult to determine how and when the market is going to react to a contractionary policy such as reducing stimulus.

In January, major stock markets around the world got a scare when a few emerging market economies dropped significantly as the tapering of quantitative easing program started to hit home. The markets have recovered, but when is the next “leg of adjustment”? Right now investors are still in a euphoric state and are bullish on the market. This scenario can change in a blink of an eye, especially given the complacency in the market. As we enter the unfavorable six month period for stocks, the market is even more prone to a “leg of adjustment”. Over the last few years we have seen summer rallies, which have been based on more stimulus, rumors of more stimulus and an uncharacteristic large flow of money from the bond market to the stock market. Given that there is a very low chance of increasing stimulus and it is expected that we will not have the same rotation from bonds to stocks that we saw last year, it is not expected that the market will have a strong summer rally.

Of course there will be market rallies in the summer months, but outside of periods where the rallies tend be seasonally significant, seasonal investors are best to have a portfolio that has reduced risk and focuses on sectors that tend to outperform during the summer months.


  • Keith: I know your bias at this time or year and in particular this year. There are plenty of indicators of warning and I agree with you on those but do you do a reality check once in awhile. We as humans look for information to confirm our bias so do you ask yourself why you may be wrong and why the markets could continue to rise. Just wondering. Great work and I enjoy reading your comments always.

    • Terry–excellent question. What you are asking is “Do you have a confirmation bias to look for evidence of why you should sell in the spring?”
      This is something we all have to watch. Gold bugs are notorious for such bias. So too are mutual fund and managed product salespeople–“buy” is the only word they want to hear.
      It is true that I “Sell in May and go away” every year–but please bear in mind that this is a systematic strategy rather than a bias–its simply based on historic odds that doing so will outperform buy/hold over a longer period of time–I use this approach knowing it will not work every year.
      But the amount of cash I raise, and the timing of which (I will tweak the timing by a few weeks), is subject to my personal interpretation of the markets every spring. So you are correct, in that I may be looking for evidence to support either raising more cash than usual, or my minimum. The issue of raising cash is never in question. My minimum is 15% each spring. The amount over that is my call to make.
      I do try to avoid confirmation bias at all times–but I am human. Thus, one has to be humble enough to keep an eye on themselves, and their interpretation of the charts. I’ll be posting more charts in the coming weeks, and you can decide for yourself if I am operating with such a bias.
      Thanks for the question–its worthy of consideration for all of us to review our own bias.


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