May Day, Mayday, Sell in May and Go Away?

contributed by Nathan Gehring, CFP®

MaypoleAs has become tradition, the approach of the month of May is greeted by the financial press with uncountable articles discussing the idea that an investor should sell out of stock markets in May and not reinvest until late in the year. The “Sell In May and Go Away” strategy sounds nice and is easy to remember. And I think the entire concept and media coverage thereof leads to some interesting learning regardless of whether the strategy is actually viable.

Catchy Jingles, Good Strategies

Many popular investment strategies are known by catchy names and easy to remember jingles, none more so than “Sell In May and Go Away.” Could it be any easier to remember? How about the “Buy The Dips” strategy? Or the “Head And Shoulders” pattern? Fun, catchy names. Maybe even mildly informational. But a good name does not a good strategy make.

A good name is easy to remember and grabs headlines. So we hear people talk about these strategies over and over and over. We remember them and bring them up. Which leads to the second and more important point…

The financial media brings these catchy phrases up all the time!

News Noise

I recently read a wonderful article discussing the negative impact consumption of news can have on a person’s life. The article suggests that much of the news we regularly consume is misleading, irrelevant, has no explanatory power and is downright toxic to the body. Short form, headline driven news is designed to offer snippets of information, often without context, to grab your attention.

I’ve been giving this article considerable thought. I’m trying to wean myself off the constant consumption of headline driven news. And it’s remarkably difficult. The article discusses headline news as a drug…and it sure feels like an unbreakable addiction! I begin to feel uninformed and ill-prepared to discuss current events with family, friends and clients. Yet, assuming the article is correct, that news I’m consuming really doesn’t offer much insight even if I have the opportunity to sound informed.

“Sell In May And Go Away” is a wonderful example of this. It makes a great headline or sound-bite. It rhymes. It’s easy to explain in a few written or spoken words.  It catches people’s ears and eyes. It achieves the objective of headline-driven news…grab your attention for a moment.

“Sell In May and Go Away” headlines have just enough gravitas to get people to think they have learned something, without having really learned anything at all. Does the strategy work? Are the tax and transactions costs to implement the strategy recouped by implementing the strategy? Who has actually executed this successfully? And so on and so forth. A good headline, but really not much substance in the paragraph or two following it.

MAYDAY

So on this May Day should you be screaming “MAYDAY” and selling in May and go away? I can’t really answer that question. At KeatsConnelly, we don’t practice that type of market timing strategy. Perhaps you find more value in doing so.

However, I can tell you that the headlines you read aren’t helping your financial decision-making. The news noise is just that…noise. It does not provide explanation nor insight. Just because you hear a catchy jingle (Sell In May and Go Away) over and over again, does not validate it as a rational way to make a decision. 

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