Josh Brown, CEO of Ritholtz Wealth Management says:
“There’s not a lot of added value in doing that and it doesn’t always work,” he says of the sell in May principle. “It happens to have worked very well over the last couple of years but then I could point you to examples of when it didn’t work and what you missed out on and what the consequences were...I don’t dismiss seasonality out of hand, I dismiss its utility for most investors.”
Straight talk. I see the names of Josh Brown and Barry Ritholtz, and I'm apt to perk up and LISTEN.
https://finance.yahoo.com/blogs/breakout/forget-seasonality-and-just-invest-smarter--josh-brown-193109335.html
Comments
I attended a Sam Stovall presentation at the 2014 Las Vegas MoneyShow that was partly focused on the market seasonality issue. In my earlier summary, I elected to not mention some statistical findings that he included in his material to avoid falling too deeply into the mud.
But your reference directly addresses the popular Sell in May axiom, so I decided to post some of the stats and one strategy that Stovall developed in his presentation. These data are reported from Stovall’s talk.
Stovall’s data sets are current and stretch back to 1945, so they mostly incorporate 68 years of market performance.
Indeed, his overall data show 7.0% S&P 500 period returns from the November-to-April segment, while a dismal 1.3% average return was recorded from the May-through-October timeframe.
The situation degrades still more when considering second-year only data in the 4-year Presidential cycle (currently applicable). This double whammy shows that the November-through-April period average S&P 500 return drops to 4.1%, while the May-through-October period becomes a negative -1.6% on the average. The horror of it all.
However, Sam Stovall offered several strategies to counter these summertime wealth robbing statistics. As I mentioned in my earlier post, Stovall favors sectors that have generally low correlations to their S&P 500 parent. In these second-year summertime doldrums, Consumer Staples and Healthcare sectors have delivered positive returns for this slack period.
According to Stovall, Consumer Staples generated an average 4.6% return and the Healthcare sector produced a positive 4.5% average return.
As one simple generic strategy, Stovall suggested a 100% S&P 500 equity holding during the strong market return half-cycle, coupled to a 50% Consumer Staple and a 50% Healthcare position in the weaker market half-cycle. There are endless variations to this theme.
In one sense, Stovall is in complete agreement with your reference, although the implementation mechanism differs considerably. There are countless ways to profit in this arena.
Sam Stovall is also a smart market researcher, and I trust his honest work.
I hope this summary of Stovall’s research helps just a little.
Best Wishes.
I too find it difficult to consider a total portfolio makeover on a seasonal basis. I simply do not subscribe to the Stovall strategy that I reported. That's not me.
I am a long-term holder who only trades about twice a year: In late December to satisfy MRD demands and early the next year to reinvest residuals.
I do own Consumer Staples and Healthcare sectors on a permanent basis to reduce portfolio volatility and because of their low correlation coefficients to other holdings.
Best Wishes.