Tag Archives: “Sell in May”

Is it wise to sell in May and go away?

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“Sometimes it’s necessary to go a long distance out of the way in order to come back a short distance correctly.” — Edward Albee (1928–2016), American playwright

Investing plans that pursue flavours of “sell in May and go away” are not vanishing anytime soon. Simply said, the catchy tune is about to ignite the annual rounds once again. Strategies that believe stock investing from November to April have better prospects than other months.

Keen followers of this practice typically sell their equities around May, such as stocks, mutual funds and ETFs. They then repurchase equity investments near November.

“I don’t recommend clearing the deck willy-nilly. Drastic actions are seldom wise replacements for long-term strategy.”

I’m fully on board with the excitement of getting away to a variety of travel destinations. That is the “go away” part. On the other hand, I just don’t buy into the questionable wisdom of selling the nest egg. For me, the “sell in May” part needs much closer scrutiny. Particularly, outlays of disposition and acquisition. Income tax implications also play a part.

Let’s be clear about the strategy. An investor unloads the entire portfolio, then acquires the new version a few months later. This process is repeated year after year, after year. Sounds like quite a heap of cash to shell out for transactions and tax implications.

Potential pitfalls

If only investing were that simple! Examining these pointers helps assess the prudence of wholesale selling: Continue Reading…

What if I sold in May and went away?

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At the end of April we wrote a piece looking at some new research on the calendar effect and popular heuristic known as Sell in May and go away.

While there is some evidence that this particular anomaly does exist and has persisted over certain periods of time, there is not really a good theoretical foundation for why it happens.  Mining historical data often yields patterns but assuming that those patterns will repeat can lead to unfortunate investor strategies and behaviours.

It’s in our nature to love short-cuts

Investors just love short-cuts. In fact not just investors love them but people in general always use heuristics to help increase the efficiency of their decision-making.  If you step outside, feel a sudden cool breeze and look up and see a dark cloud in the vicinity you respond fairly quickly and sensibly by seeking shelter or at least grabbing an umbrella as you head out the door.  This ability to create short-cuts makes our lives so much easier and sometimes even keeps us safe.   We recognize patterns that we’ve seen before, assume they’re going to happen again and act almost automatically in response: it simply makes decision-making faster and less difficult. No need to analyze things in detail, just act.

The challenge is that the same heuristics that make decision-making easier and faster or keep us safe in many aspects of our lives can also produce behavioural biases that don’t help us as investors.  We love things like the “January effect” or “Sell in May and go away” because they’re easy and have sometimes worked in the past.  But putting them into practice doesn’t always work out the way we might imagine.

But short-cuts don’t always work with investing

This year is a good case study.  What if we had sold in May and stayed out of the market through until now?  To cut to the chase, you wouldn’t be happy!  A Canadian investor would have missed out on the following returns from May 1 until now (all in Canadian dollar terms – return data from S&P Indices Canada and exchange rates from Bank of Canada as at December 7, 2017):

S&P/TSX Composite Total Return Index: +4.6%

S&P 500 Net Total Return Index (in CAD): +4.7%

S&P Global ex-US Broad Market Net Total Return Index (in CAD): +4.8%

Continue Reading…

Rebalance in May and go away?

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AdrianEditor’s Note: This blog by Adrian Mastracci spawned my column in the Financial Post today, headlined In May, Don’t Sell, Rebalance. Below is the original blog written for the Hub by Adrian. — Jon Chevreau

By Adrian Mastracci, KCM Wealth

Special to the Financial Independence Hub

 “Pitfalls of “sell in May and go away” strategies are not going away anytime soon.”

The catchy phrase “sell in May and go away” is making the annual pilgrimage rounds once again; a strategy that believes stock investing from November to April has better prospects than other months. Keen followers sell their equities now, such as stocks, mutual funds and (equity) ETFs.

They then repurchase equity investments around November. The “sell in May” part of the strategy needs much closer scrutiny, especially the costs and fees of selling and repurchasing. I’m fully on board with the excitement of getting away to a favourite destination. However, I don’t see any benefits to selling in May.

 Selling in May doesn’t work well often enough

If only successful investing were that simple! As an aside, selling in May does not work well often enough. These pointers should change your views on the wisdom of selling:

  • Commissions incurred to sell and repurchase investment selections.
  • Deferred Sales Charges (DSC) may apply when you sell mutual funds.
  • Front loads or DSC fees starting at the high rate for purchasing new mutual funds.
  • Tax payable on capital gains realized in 2016 when you sell current investments.
  • Earning less interest income than dividends from equities you sold.
  • Paying more tax on that interest versus that on dividends you gave up.
  •  Say the remaining DSC on mutual funds you sell is 2% to 3%.
  •  The DSC on newly purchased mutual funds will likely rise to near 6%.
  • Current dividend yields given up are in the 3% to 4% ballpark.
  •  Interest rates on cashable deposits now hover close to 1%.
  •  Another variable is whether the repurchase prices will be lower, similar or higher than today.
  •  Not to mention the amount of short-term speculation and portfolio upheaval you take on.

While they might seem appealing, these strategies are not as simple as they initially feel.
Add up all the costs, fees and implications of your round trip before you sell the farm in May.

I suggest not to clear the deck, nor to take other drastic actions.
A modified investing approach may better suit your needs.

Try these ideas instead:

  • Migrate to a more comfortable, long-term asset mix.
  • Make a series of smaller investing moves.
  • Arrange another portfolio opinion.
  • Rebalance in May and go away.

Rebalance in May

Investors should not spend any time agonizing whether they should sell in May and go away. I liken it to implementing a knee-jerk reaction that does not deliver.

Perhaps all that is necessary is a rebalancing of the asset mix already in place: a strategy that sells some of the winners and buys some of the laggards.

The beauty of a simple rebalancing is that you don’t have to make the right market calls.
Just rebalance the nest egg to your asset mix targets, not to the markets.

Be extra careful when contemplating sweeping changes, like “sell in May.”
You may create lasting and costly portfolio damages.

My investing philosophy is about making logical decisions and following a sensible plan.
I can’t find a logical reason or plan to “sell in May.”

So I stick to the prudent, tried and true rebalancing strategy. It leaves you much more time to decide where to go to in May and thereafter.

Adrian Mastracci, MBA,  is president and portfolio manager for Vancouver-based KCM Wealth Management Inc., specializing in designing and stewarding retirement portfolios.