There is an old saying that has been around for a very long time in the stock market.  It is “sell in May and go away”.  The logic behind it is that markets typically don’t do much in the summer months, so it is better to just go to cash for those three months and pick up where you left off in September.

Today I want to talk to you about why I do not adhere to the saying.

First off, I’ve done little if any research on if it is true or not.  The reason is that it simply doesn’t affect what I do.  I primarily have two styles of investing that I typically use for myself and clients.  They are “buy and hold” as well as “aggressive short term trading”.    Let’s start by taking a look at “buy and hold”.

I’m a firm believer that the stock market will go higher in the long run.  There is a lot of history that backs me up on this belief.  No other major asset class has outperformed stocks in the last 100 years.  Sure, there are some individual investments that have done better, but on the major asset front, stocks are the leader far and away.  If you average out the annual rates of return, it is typically around 10%.  Keep in mind that it is almost never that number every year.  There are some years where it is up significantly more and there are some years where there are painful losses.  “Average” is the key word.

With that in mind, if I’m in a buy and hold strategy, the down months in the summer won’t have much (if any) effect on the long-term performance.  So, even if the summer months are bad (which there is absolutely no proof that they will be), the long term is not affected.  That is why I remain exposed to the market in the summer.  Also, I feel it would be against the “buy and hold” belief if I simply sold people’s stocks in the summer and bought again in September.

Next, let’s talk about the short term.  I am typically a bull in the short term as well as the long term.  While there are both bullish and bearish opportunities in the short term, I feel more comfortable staying bullish.  If I’m not bullish in the short term, I typically just stay flat. 

Since I am keeping a short-term mentality with this section of the portfolio, I manage risk very carefully.  That way, if something goes against the trade, action can be taken relatively quickly.  With regards to the summer, it typically has not had much effect based on what I do.  Keep in mind that if the market ever were to go straight down, I would do my best to avoid it (which I have done at times), but from my experience in the summer, it is never as bad as they say it is, and if it is, I’m prepared for it nonetheless.

If you have any questions, please email me at mtosaw@rcmfs.com.