Sell In May And Go Away

Sell in May and Go Away is a famous phrase used by traders and analysts in finance to describe six months where the stock market indices perform poorly. Its finds common use in May, when traders sell and disappear until November.

These six months are considered to be the weakest period for any equity market. As a result, many stocks tend to underperform during the summer months. Investors can easily decide their investment strategy during this time. However, it does not help predict future trends as it is seasonal. This is also called a Halloween indicator, which refers to buying back the stocks post-Halloween.

• Sell in May and Go Away, or the Halloween effect, is an adage used by brokers in the stock market where investors tend to sell stocks in May and re-invest in November.
• The phrase's origin dates back to the 1776s when investors and British officials went on vacation and came back after the St. Legers Stakes horse event.
• The concept became famous in 1934-35 among the major stock exchanges. Similar evidence was noted in the Telegraph article in 2005.
• However, there are instances when the market did not see any stock downfall. For example, from 2018 to 2020, there was a bullish pattern.

Sell in May and go away refers to a commonly used phrase in the stock market that directs investors to sell stocks in May and re-invest in November. The sell in May and go away strategy originated from the Second World War. Like melt-up, it is a historical trend followed in the market for many years.

As the summers arrive, investors and traders tend to take a vacation. Therefore, there is comparatively less volume traded in the market. For example, between 1950 and 2013, the sell-in May and go-away historical returns in the Dow Jones index saw the most minor growth of 0.3% between May and October. Since the market participants are inactive, the trade falls, causing a bearish trend in the stock market. Thus, most of the stocks tend to underperform as per their expectations. Therefore, it is suggested that the traders should sell such stocks and go away for a few weeks. They re-entered the market in November to recover their losses.

Hence, this reduction in trading practices causes inadequate liquidity and greater volatility. Thus, it is essential to note this theory is generalized and only sometimes accurate. However, investors should evaluate every stock carefully, considering the investment's growth in the future instead of focusing on its past performance for its returns on investment.

Other instances include the Santa Claus rally in December and January. Once these effects absorb the highest potential to be bullish, a downfall is always on the other side. Therefore, nothing stays for the next six months (May to October). However, it only sometimes stays down. In the past few years (2018-2020), a bullish pattern was seen between May and October.

The phrase sell in May and go away originated in England. The citizens started using it in 1776, during the horse race event called "St. Leger's Day". According to the context, the investors, bankers, and other British individuals vacationed during the summers to escape the scorching heat. Later, they arrived back in November after enjoying vacation and the St. Legers Stakes horse event. However, the occurrence of this phrase got famous in 1935.

Historical facts suggest that the phrase became known among the English upper class as they worked during winters and escaped London's heat. A 2002 report in the Financial Times mentioned this quote dated Friday, May 10, 1935. It said that a clever North Country correspondent interested in the stock market often used this phrase among his friends. The evidence of this saying was strong from an article in the Telegraph in 2005.

A broker named Douglas Eaton at Walker, Cripps, Weddle & Beck confirmed its usage in the 1930s. As Eaton worked as a Blue Button (messenger), old brokers regularly repeated "Sell in May and go away" in 1934. Adding to it, the investors used to sell the stocks in May and go to Lord's Cricket Ground.

Sell in May and go away statistics had a similar occurrence in the United States when stock trading halted between Memorial Day and Labor Day (May and September).

Let us look at the examples of the sell in May and go away statistics for a better understanding of the phrase:

Example #1

Suppose a good bullish pattern was created in the stock market this year. However, as the winters came to an end, the pattern took a reversal. As a result, the investors predicted a meltdown in the prices. Plus, summers brought vacation, resulting in reduced trade volume. Thus, traders sold stocks in May and refrained from investing in this period.

As November arrived, they picked up shares again. By the end of December, the market saw a plunge. The sell in May and go away historical returns yielded a higher return than others. Thus, the investors could trade off their losses by switching their positions.

Example #2

According to a recent article dated April 2023, equity analysts of financial services company Well Fargo expect the S&P (Standard and Poor's) 500 to drop between May and October. They even stated the index to fall by 3700 by the end of the Halloween effect.

Moreover, the Wells Fargo economist stated that they predict that the decline in stocks will be caused by a number of factors, including:

1. An aggressive monetary policy;
2. Possible problems with capital and liquidity brought on by the financial crisis; and 
3. A consumer who is becoming more and more dependent on credit to support their spending.

Although both strategies involve trading, they have different features. Let us look at their differences:

This article has been a guide to Sell In May And Go Away and its meaning. Here, we explain its history, comparison with buy and hold, and examples. You may also find some useful articles here -

• Panic Selling
• Panic Buying
• Sellout