Should stock investors sell in May and go away?

The traditional "Sell in May and Go Away" investment philosophy suggest that from about the third day in May until close to the end of October, an investor would do just as well on average, with a lot less risk, to reside in the safe confines of Treasury Bills. I thought I would scan my databases back to 1950 and see which were the strongest/weakest 1, 3, 6 month trading periods historically. Best/Worst periods are determined by "average" historical return. I did my scan by trading day of the month.

BEST AND WORST N MONTHS TO BE IN THE MARKET EACH YEAR 1951-2010

Day I corresponds to the Ith trading day of that month.
Day -I corresponds to Ith trading day from the end of that month.

SCAN START END #UP #DN AVG%
BEST 1 MT DEC 2 JAN 2 47 14 2.18
BEST 3 MTS OCT-5 JAN-5 47 14 4.64
BEST 6 MTS OCT-5 APR-5 47 13 7.74

WORST 1 MT AUG-5 SEP-5 30 31 -0.48
WORST 3 MTS JUL-5 OCT-5 33 28 -0.33
WORST 6 MTS APR-5 OCT-5 37 24 0.46

Since 1950, 94% of the year's average annual gain of 8.20% return could have been obtained in the six month period between the 5th to last trading day of October and the 5th to last trading day of April. During the remaining six months, we would average better than the average S&P% return by simply staying in treasury bills. My variation of the study looked at six month intervals while the traditional version allows some derivation from time intervals with modestly different results


S&P PEFORMANCE
FROM THE 5TH TO LAST TRADING DAY IN APRIL
TO 5TH TO LAST TRADING DAY IN OCT

YEAR OCT-MAY MAY-OCT
1951 9.53 4.55
1952 2.05 2.82
1953 0.46 0.45
1954 14.69 14.63
1955 19.24 11.86
1956 10.86 -2.98
1957 -0.28 -11.22
1958 6.28 16.88
1959 14.95 -1.76
1960 -3.65 -4.85
1961 25.29 4.50
1962 0.18 -20.11
1963 27.48 6.15
1964 7.76 6.58
1965 4.58 3.13
1966 0.45 -14.31
1967 17.39 2.05
1968 2.54 7.14
1969 -2.47 -3.26
1970 -15.51 0.65
1971 24.76 -8.50
1972 13.76 2.34
1973 -0.66 0.46
1974 -18.28 -22.35
1975 22.70 4.29
1976 14.15 -2.30
1977 -2.92 -6.33
1978 5.24 1.61
1979 5.03 -2.15
1980 4.40 22.49
1981 5.68 -12.56
1982 0.93 11.79
1983 19.12 4.82
1984 -5.05 5.21
1985 9.59 2.89
1986 29.06 -1.34
1987 17.90 -19.13
1988 15.30 7.57
1989 9.32 10.95
1990 -3.54 -6.11
1991 23.40 0.38
1992 6.46 2.23
1993 3.68 7.07
1994 -3.57 3.10
1995 11.13 13.57
1996 11.62 7.81
1997 10.02 13.72
1998 26.33 -3.21
1999 26.83 -4.88
2000 10.53 -4.54
2001 -11.39 -9.04
2002 -0.63 -17.88
2003 1.54 13.13
2004 10.12 -3.59
2005 6.15 2.96
2006 9.32 5.67
2007 7.10 2.30
2008 -8.29 -38.87
2009 2.04 23.06
2010 13.71 -2.18

#UP-DN = 47-13 36-24
AVG%CHG= 7.74 0.46

Of course, seasonals are only consideration in determining one's desired market exposure.

G. Wayne Whaley has been executive vice-president for Witter & Lester since 1993 and principal since 1998. He holds a B. S. degree in the Science of Mathematics from Jacksonville State University and a M.S. degree in Operations Research (Applied Math) from Georgia Technological Institute. He has been registered with the Advisor as an Associated Person since July 14, 1995, and as a Principal since, March 20, 1998. More info: http://witterlester.com.

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