Sell in May and Go Away

I have just read an article about this topic. Starting my investment in September last year, I am apparently in a 'good' period. But the question is : Will these patterns persist?

Here's the extract from Boston Business Journal: an old article, but the Research's facts and figures are quite interesting

Sell in May and go away? It's never that simple

Various writers and market researchers have noted the striking difference in returns over history between the six- month period from November to April (the "good" period), and the six months from May to October (the "bad" period). The facts show that nearly all of the stock market's gains take place from November to April. Conversely, returns are close to zero from May to October.

So what exactly are the numbers?

Keppler Asset Management has done research on this topic globally. For the U.S. stock market, the average return for the "good" period is 7.5 percent vs. 1.2 percent for the "bad" period. This is based on returns from 1969-2001. In order to compare to non-U.S. stock markets, we only show results since 1969. However, other researchers have shown similarly startling results for the U.S. when returns go back to 1940.

Looking at markets overseas, the same pattern persists. Looking at Morgan Stanley Capital International's (MSCI) World Index, a commonly used benchmark for global investments, "good" period returns are 8.4 percent while "bad" return periods are actually negative (minus 0.4 percent). Interestingly, this phenomenon (where "good" period returns exceeded "bad" period) applied to all 18 markets where MSCI had index returns back to 1969.

As implied by the spread for the World index, the United States was far from the most notable. Italy won that prize with a spread above 16 percent (14.5 percent vs. 2.2 percent). Denmark had the smallest differential with "good" at 6.8 percent and "bad" at 5.1 percent.

Moving back to the market that most readers have the greatest interest in -- the United States -- Ned Davis Research takes this thesis to another level of detail. Its research indicates the optimal "bad" period (based on history) lasts from the sixth trading day of June to the fifth to last trading day of October.

The "good" period is the rest of the year. Using these time frames, the "good" period would have had investments going up by 134 times ($1 becomes $134) from 1942 to 2001. Amazingly, the bad period would have had a return of minus 3 percent, meaning $1 becomes $0.97.