Sell in May and Go Away; Buy Again on St. Leger Day

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st. legers dayThere is an old adage: “Sell in May, and go away.”  Summertime is usually some of the lightest trading months of the stock market.  Most traders hate this period of time because trade ranges and volumes shrink.  There is hardly any momentum with stocks, and it’s incredibly difficult to make any money.

 

Some of my friends in the financial industry use the summer to catch up with family along with figuring out which trades they plan to make later in the year.

 

However, summertime is over now.  The kiddos are back in school, summer vacations are coming to an end, and if you live in an area like mine, roadways are congested once again.  Since we are moving into the fall, I’ve traded in my leisure summer reading for articles surrounding stock market news.

 

While doing so, I came across the saying, “Sell in May and go away; buy again on St. Leger Day.”

 

But, what is St. Leger Day?

 

St. Leger Day

st. leger dayWell, it appears that St. Leger Stakes is the oldest horse race, established in 1776.  It is the final leg of the English Triple Crown.  It is also the traditional end of the summer season in England, occurring on September 16th this year.

 

So why does this matter?

 

Monthly Market Returns

Since 1950, the US stock market has returned 0.34% on average between May and October.  In contrast, the US stock market has returned 7.48% between November and April.  

 

I had no idea that November through April were such great months while the rest of the year did so paltry in comparison. But here is the really eye-opening part.  According to Jeff deGraff, head of Renaissance Macro Research, September is “the only month of the year that has statistically significant negative returns.”  

 

Since 1950, the S&P 500 has averaged a decline of 0.50%, while the Dow Jones has declined 0.80% on average, and the Nasdaq has declined 0.50% on average, all in the month of September.

 

September is an awful month historically.  

 

Why September Has Yielded Such Bad Returns

st. leger daySome extraordinary events have taken place in September.  We’ve had the tragedy of 9/11, the Lehman Brothers bankruptcy, the peak of the Dow Jones Industrial in 1929 before it crashed in October, and George Soros breaking the bank of England when he bet against the British pound, causing Black Wednesday, in 1992.

 

These events have caused September to be an interesting month for the market.  And, this year, September could also be a wild month.  

 

Congress is returning from a summer recess.  There will be fights over the debt ceiling, a potential federal government shutdown, and who knows what else is in store for us.  

 

How Should This Affect Your Investing

As most of you know, I am not a fan of timing market, let alone, seasonally timing it.  For instance, timing the market by “selling in May” this year would have rid you of the 3.87% rise in the market.  

 

Of course, September and October could be rough months that might make you reconsider the position.  It’s clear that just because the market reacts one way historically, it doesn’t necessarily dictate future behavior.

 

Yes, we can look at the past to understand why things happened and analyze patterns.  However, using past performance to predict future performance is simply futile.

 

So readers, were you familiar with this old adage?  Do you do seasonal trading?  Share your thoughts below.

Mustard Seed Money

Welcome to the website. A mustard seed is a very small seed but astonishingly grows very large over time. My hope is that through your financial journey that your small investment in time, money and faith will grow beyond anything that you could ever imagine.



42 Comments

  1. Hi MSM,
    You wont be surprised to know that, given I am over here in the UK, I was very familiar with this. Before the internet age the brokers often took a huge time over the summer off, so limited number of trades were carried out hence resulting in a huge change in September. If you ask me, they basically drank all their profits during the races 🙂
    For me, nowadays it is less applicable with all the online brokers etc.as people can trade any time the market is open (and I can’t seem them shutting the market for them!).

    I’ve never adhered to it – I do the majority of my investing now as drip feed ignoring the value / time / date / alien invasion plans and just keep plodding away, but I do try and time the market with some of my actively managed (by me) portfolio, but never on a seasonal basis….

    Cheers,
    FiL
    FIREin’ London recently posted…August ’17 PerformanceMy Profile

    • Good to hear from you FIREin’ London!!! Glad to hear from your perspective on the other side of the pond. I love the DRIP and not having to wonder about what to do with the dividends that I get. Super easy and a great strategy 🙂

  2. I had never heard of it, but it does make sense. Everybody is away and their minds are on other things, so you might as well take a break from the craziness.

    Personally, I have never tried to time the markets. I put in money to my Vanguard accounts every month regardless and have quit buying and selling trying to rebalance. For me, the KISS method (keep it simple stupid) works best, so my money only flows in and sits. Past performance, I hope predicts somewhat future performance in the fact that the stock market will continue to go up as a whole…
    Justin @ Atypical Life recently posted…5 Revolutionary Budget Hacks to Save You MoneyMy Profile

    • Thanks for sharing Justin!!! I definitely agree that the KISS principle is one of the best. Not having to wonder what’s going to happen in the future is awesome when you can dollar cost average and dump money into the market 🙂

  3. It’s interesting information to have, but won’t change my behavior. I keep thinking about the “if you miss the best fifteen days of the market you miss 90% of your gains” quote (it’s something like that). So I’m always wary of market timing. But who knew September is the cruelest month… for stocks? 🙂
    Laurie@ThreeYear recently posted…August Net Worth UpdateMy Profile

    • Everybody is trying to be “smart” and predict the next crash. Very in vogue right now but think about how many people have missed out on the massive gains over the past 5 years!!!

  4. I’ve heard the saying before but I don’t take much stock in it. Simply put remove a few of the outliers you mentioned or look at it from a distribution rather then average and you’ll notice it is often no different then the rest of they year. It also has been the best time of the year some years. It’s one of those sayings that doesn’t have much basis in reality.
    FullTimeFinance recently posted…My Money Map: Simplicity and AutomationMy Profile

    • Thanks for sharing Full Time Finance!!! I wasn’t familiar with the saying so I found it fascinating but since I’ve heard Sell in May but never when to jump back in 🙂

  5. I used to glue myself to the business news network on a daily basis. People on the network throw this adage around and trying to time the market and provide outlook for the rest of the year. After a couple of years of listening to those talking heads, I decided that it was best to be a passive investor and ignore the noise on a day to day basis.

    I freed up a lot of time and never missed any important events. On the other hand, the two hours plus per day that I freed up, I became a lot more productive and started to take investment courses and read up on investment strategies.
    Leo T. Ly @ isaved5k.com recently posted…I Don’t Want To Be Mortgage FreeMy Profile

  6. I’ve heard the phrase before but never put any weight in it. My investment strategy has always been to put as much money in as possible and leave it in through all the ups and downs. I guess it’s possible for someone to time the market. It’s just not for me. I’m sure that if I ever tried, I’d end up missing out on returns.
    Jason@WinningPersonalFinance recently posted…Procrastination is the Enemy of Winning – Save Money on InsuranceMy Profile

  7. Hey there, Rob, I’ve never heard that saying before. Plus, I never really gave much thought to seasonal trading or how bad September is. You make some interesting points there. Thanks for sharing!

  8. September has a long history of being an awful month. The good news is that it is halfway over. I enjoyed reading the history you provided. Like you, I don’t try to time the market. I just dca every payday and rebalance twice per year if need be.
    Dave recently posted…Schwab 1000 Index Fund (SNXFX)My Profile

    • Thanks for sharing Dave!!! It’s interesting to see how the market reacts historically. I do wonder if hurricanes and other weather events play into the news at times…

  9. Great post, Rob. I have never heard that adage before, but I am aware that historically Mr. Market tends to throw tantrums in September. Thankfully, it doesn’t matter much to someone like myself who dollar cost averages into an index fund. It is really interesting to observe though.
    Cody @ Dollar Habits recently posted…How to Harness the Power of HabitsMy Profile

  10. I’ve not heard the saying before, thanks for sharing the history on it. I did read late last year or early this year that September was a dismal month for the market. It didn’t change anything for me then, nor will it now, just part of investing.

    • I recently read that we haven’t had a single negative month so far this year and that if continues to act like this that it will be the first time in market history 🙂

    • Thanks for sharing Mr. Defined Sight!!! Sounds like you have things under control and are doing really well. As opportunity strikes it’s never a bad time to jump in 🙂

  11. I’ve never heard of St. Ledger day so thanks for sharing the information. I suppose if one wanted to stagger there buys this could be an option. I read on another blog about a big windfall and the blogger may plan to buy stocks at each dip in the market of 2%. I suppose that’s a strategy that uses market timing. If you’re in the market for the long-term anyway, why not buy at the dip(s)? 🙂
    SMM recently posted…What’s Your Money System?My Profile

    • I have thought about buying on down days and what would happen. Seems like an interesting strategy to constantly be buying on the dips. Although I’d have to do more research.

  12. Like you, I am not a fan of market timing (at least short & medium term market timing). I continue to put in my regular amount every month, and allocate it like my plan has. In early July, I buy/sell to get my allocation back in line (and do the same in January).

    I can understand why folks have the saying, but I don’t see a reason to pay the costs of selling/buying in May.

    Good topic.
    Kevin@39months.com recently posted…Good post on what to do with the credit breach at EquifaxMy Profile

    • Thanks for sharing Kevin!!! I definitely prefer DCA over timing the market although the history was fascinating to me but past performance is not indicative of future performance 🙂

  13. Wow, I had no idea that the stock market took a nap, so to speak, between May and September. Based on this historical figures it’s almost tempting to follow the advice!

    The St. Leger is a great horse race by the way, I went to it once when I lived in England!

    • That’s a great approach!!! There’s no point in trying to time the market. It usually doesn’t end well for those that time the market. I speak from my experience 🙂

  14. LOL, I knew about the “Sell in May” part, but not the rest.

    I always figured that stocks got funky over the summer because people needed to sell for things like college and private school tuition, home sales and repairs, etc. And the end of the year is usually good because fund managers want to make their year end bonuses. In both cases, the stock market gets disrupted less by internal forces and more by other realities.(But my theories could be totally wrong.)
    Emily Jividen recently posted…3 FinTech Companies Working to Help You Crush Your Student DebtMy Profile

    • Thanks for sharing your theories Emily!!! I like them all and like you I wasn’t familiar with the 2nd half of the saying. I always thought sell in may and go away. But when do you get back in…

  15. You have to love the many seasonal sock market investing adages. Like you, I don’t follow any sort of market timing no matter how many years of back testing is done to show a trend. Like the January Effect, Halloween Indicator, Santa Clause Rally and other adages I just continue to make my monthly buys like clockwork and ignore these sayings.
    DivHut recently posted…Teach Your Kids About FinanceMy Profile

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