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‘Don’t sell in May or you’ll be sorry!’

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Market Rider

‘Don’t sell in May or you’ll be sorry!’

/ 12:01 AM May 06, 2014

It’s now the month of May. Contrary to the usual market mantra to “Sell in May and go away!” we now hear a different tune.

The new version was echoed in the title of one global market news over the weekend. It said: “Sell in May and Go Away as a strategy is unlikely this year.”

Sharing the same outlook for the local market and allowing patent Filipino ingenuity to craft slogans—that oftentimes has a comical twist—the reformulated trading mantra by old hands in this connection for the local market is “Don’t sell in May or you’ll be sorry!”

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Phenomenon

This aphorism of “Sell in May and Go Away!” is of an American phenomenon than anything else. The adage warns US investors to stay out of the market in May. This strategy is recommended to avoid the often seen decline of stock prices that were observed to start happening in May.

As claimed, US stocks tended to underperform within the six-month period commencing in May and ending in October as compared to their six-month market performance from November to April.

In the Stock Trader’s Almanac, it said that “since 1950 the Dow Jones Industrial Average had an average return of only 0.3 percent” for the period May to October, while it “had an average gain of 7.5 percent” during the period November to April.

The phenomenon now also seems to gain global application and existence. From a paper published in the Financial Analyst Journal in 2013, which covered several markets for the period 1998 to 2012, the paper found out the phenomenon now “indeed existed” in these countries.

First of all, the paper concluded that “on average across market and over time, stock returns are roughly 10 percentage points higher in November-April half-year periods than in May-October half-year periods.”

The paper continued to clarify that, “of course, to say returns are lower in May-October does not mean that they are negative. They could be positive but just not as large.”

In the case of the eurozone countries studied like Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands and Portugal the “returns did tend to be negative.” The same was, as well, observed by the paper in the US, UK and Japan “and a few others,” within the period studied covered.

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In conclusion, however, the paper affirmed that none of the countries studied incurred negative returns for the period of November-April.

The exact reasons why this now occurs almost across the globe are not yet that established or totally known.

The contributory reasons cited by the paper on the discrepancy in performance in these countries during the May-October and November-April periods could be accounted by the following: “lower trading volumes due to the summer vacation months” and the “increased investment flows during the winter months.”

This is why the complete quotation for the market saying is said to be “Sell in May and Go Away, Come Back in November!”

Bottom line spin

We don’t have hard market data to show the phenomenon had been actually happening or that it consistently existed in local market.

Picking up from old hands, one reason cited why the local market goes down in May was due to the payment of yearly income tax returns in April. The cash of the general investing public is used for the purpose.  Everyone’s cash level is, therefore, low at this time.

And just before investors could get started with their investment game plan in the market, they are again confronted and saddled with the obligation of school enrollment and payment of tuition fees come June.

Whatever the real reasons are, the local market pattern in May had almost always likewise moved down or sideways, at the least.

We need not go much far back. The market underperformed last year from May all the way to October.

If you followed the strategy of the adage as suggested in its complete wording of “Sell in May and Go Away, Come Back in November!” you would have been the biggest winner for 2013. Holding on, you could now be also one of the possible big winners for 2014.

To recall, the market was up no less than 1,579.47 points or 27.17 percent when it hit its highest of 7,403.65 on May 15, the same day it closed at its highest close for the year at 7,392.20.

The market plunged in June, falling by as much as 600 points or almost half of its total advance for the year. It recovered in July and hit the high of 6,743.31 on July 23. This was lost in August, when the market reached bottom at 5,738.06, down 1,005.25 points or 14.91 percent from July.

Again, the market recovered in September and peaked in October. The move involved a gain of at least 859.15 points or 14.97 percent.

The market was actually still on the fall in November. It only hit bottom in the middle of December. By then, stock prices started to rebound and climb. The progress of the increase continued all the way up to last week.

Considering favorable market developments and economic fundamentals—that worked to support the successful listing of Double Dragon Properties Inc. (DD) despite its supposed steep pricing similar to Century Pacific Foods Inc. (CNPF) whose scheduled listing is today—old hands say, “Don’t sell in May or you’ll be sorry!”

The writer is a licensed stockbroker of Eagle Equities, Inc..  You may reach the Market Rider at marketrider@inquirer.com.ph , densomera@msn.com or at www.kapitaltek.com

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TAGS: Business, column, den somera, Stock Market, stock selling
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