Of the many expressions being bandied around when it comes to the stock market, the most common one seems to be, “Sell in May and go away”, not least because it rhymes very nicely. The origins of this phrase are unknown but for many investors, this seems to be the chant they use whenever the market falls, for whatever reasons. Is this advice pertinent and should investors actually act on it?
You Cannot Time The Market
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The phrase seems to imply that investors can time the market by selling out in May and then possibly entering again at some later time. However, history has shown that it is a futile effort to try to time markets, and most people have no consistent record of success. The problem with selling all positions is that an investor will have no clue as to when to jump back in, and may end up missing out when the market rises again.
Invest For The Long-Term
Investors would do well to remember that investments are meant to be for growing and building wealth for the long haul. A strategy which advocates selling in May without any logic or reason is neither robust nor advisable. We should first question – why May and not any other month, and even if the advice says “sell”, does it mean the entire portfolio or just certain positions? Such a blanket statement is unclear, and investors would be doing themselves a disservice if they were to follow it blindly.
Stay Focused On Business Performance
A statement like this also ignores the underlying business performance of companies within a portfolio, and also takes their prospects for granted. If the company’s business performance is good and it continues to be able to grow and expand its business, there should logically be no good reason to sell and “go away”.
The Foolish Bottom Line
As can be seen, “sell in May and go away” is another one in a long line of phrases which tries to tell people how to time the market. Remember, following such statements could be detrimental to your financial wealth.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.