Sell in May and Go Away? Not So Fast!

There is a famous old saying that essentially goes, "October is one of the worst months for stock market investors. The others are January, February, March, April, May, June, July, August, September, November and December." So much for market forecasting!

Another popular stock market quote is, "Sell in May and go away," implying that May and the rest of the summer are bad investing months and stock traders are better off spending the season at the beach. While there is a historical pattern that six-month returns from May 1 to October 31 are lower than six month returns from November 1 to April 30, a more detailed review of monthly returns proves that investment return patterns cannot be simplified so easily.

What are the worst investing months of the year? Historically, since 1926, the only month with an average return of a loss is September.

Lowest return months:
-0.72% September
+0.21% October
+0.46% February
+0.53% May
Highest return months:
+1.73% December
+1.52% July
+1.50% November
+1.48% January

As you can see, there is no clear seasonal pattern. Furthermore, remember that these are long-term averages. Who is to say that 2012 and 2013 will be the same?

Clearly, there are many factors that contribute to short-term performance in the stock market. Seasonality is not one that I would bet your portfolio on! Investing is a contrarian process that takes discipline. There is no single easy formula for success.

About Bruce J. Berno, CFP®

Bruce J. Berno, CFP®is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com/.