Economic Perspective – Sell in May and Go Away

Economic Perspective – Sell in May and Go Away

By J. David Lewis

It seems I have heard an expression, “Sell in May and Go Away,” every spring for most of my adult life.  I assume it comes from a belief markets will be turbulent through most summers.  For 2010, there certainly has been a good deal of market volatility.  The problem with the expression is that selling in May of 2010 would have been too late.  The S&P peaked in late April.  The markets were far below their peak only a few days into May. The correction was so sharp it would have been almost impossible to avoid selling close to the lowest levels of the summer.

Selling in May of 2009 would have been even worse.  The S&P return for April 30 to July 31 was 13.81%.  May 31 to August 31 was 11.67% and June 30 to September 30 was 15.61%.   Missing any of the 2009 three-month periods after February would have substantially retarded portfolio growth – even with the volatility from April 30 to August 31, 2010.  A few days ago, a news story proclaimed that September 2010 might be the best September in 71 years.

Yes, the summer of 2010 has been uncomfortable.  Around June 30, we had to coach a few friends through uneasiness.  It is very true that the hardest work in our profession comes during periods when markets are battered and fees for our services are generally reduced.  During depressed markets, we experience the financial decline in “real time,” rather than in portfolios that will be used for lifestyle spending in the future – often very far into the future.  Fortunately, this summer we have seen increased new client demand for our services.

In late September, Christie and I adventured out for our first extended vacation since our January 2008 trip to Sedona, Arizona.  That trip inspired Markets with Bulls & Bears, which is a story that still gets an impressive number of visitors to our website.  In the summer of 2009, despite the market recovery at the time, we were like a lot of other people.  We simply did not feel like spending money.  The vacation places we visited in North Carolina and Georgia felt depressing.  We moved from one town to Highlands, North Carolina in search of a more comfortable and upscale experience.  Without a hotel reservation, Christie walked to the desk and asked if there were any special deals.  The room was nearly half our previous stay there.  Yet, Highlands was just not as enjoyable as our previous trip there.  Shops were closed and the vacationers that made it there didn’t look happy.

In 2010, the Black Hills of South Dakota felt dramatically better.  People seemed to be smiling a lot more and there was a sense that the summer vacation season was reasonably good. Hotel rooms appeared to cost about as much as one should expect and the facilities appeared close to full.  The restaurants were busy.  It felt like a vacation among people enjoying themselves.  Although we didn’t spring for another piece of art, as we did in Sedona, it felt much more like a real vacation than we could feel in 2009.

Despite this summer’s volatility and concerns for a “double-dip recession,” brave souls were venturing back into a little spending.  When the debt and saving aspects of personal financial statements have been repaired sufficiently, this is what our economy needs.  I think the “double-dip” will be avoided yet again.

Once in the summer, I heard that there has been only one documented “double-dip” in history.  Another time I heard there have been only two.  Bryan Hankla CFP® attended an advanced investments workshop in San Francisco a few weeks ago, where an older and experienced portfolio manager said he is not yet convinced there has ever been a double-dip recession.  Bryan was impressed with his careful dissection of historical periods some might call “double-dips.”  Who knows?  Double-dips may be mythical.  Continuing education is very important for putting the latest news story into perspective.  Bryan gets to share the experience of strong professionals regularly through the requirements of National Association of Personal Financial Advisors.

So, now we are looking forward to October, which is the month that had both the Crash of 1987 and Black Monday of The Great Depression.  Some say the upcoming month has potential for enormous surprises.  It certainly does.  Every month does.  At a Wyoming visitors’ center on the last day of our vacation, an email on my cell phone told of large “wholesale credit unions” being rescued or closed.  I briefly wondered if the dramatic news might hurt hopes of a good third quarter.  Any concern I had was soon dissipated.  As I write this, it looks like the S&P 500 Index return will be somewhere around 11% for the quarter.

We do not know what October, November or December will bring.  There will always be a struggle between Bulls and Bears. At Resource Advisory Services, our education and experience tell us it is very important to help our clients, and anyone we can, understand that staying with a good portfolio allocation is the best anyone can do.  The most dangerous times are when we believe we are absolutely sure about the short-term future course of any free markets.  At those times, we have a high probability of being wrong.  All the euphoric and depressed times will eventually blend into a long-term that includes many short-term dramas.  There is more to money than money®.  It is never as simple as one might be tempted to believe from an expression like “Sell in May and Go Away.”  This one may have been concocted by people who wanted a full summer of vacation.

Contact J. David Lewis directly with or share your thoughts on this topic below. He founded Resource Advisory Services in 1985.  National Association of Personal Financial Advisors (NAPFA) was formed only a few years before. Lewis became a NAPFA-Registered Financial Advisor in 1986 and is a passionate advocate for fiduciary, fee-only financial planning and has been associated with financial services since childhood in a banking family.               49607

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