Timing the Market: Sell in May and Go Away?
There are lots of different ways to say, ‘I think I can time the market.’ Here are a few examples:
- I will get back in when things feel better
- I am waiting for a big downturn before I invest
- It feels like the market’s due for a pullback
- This rally doesn’t feel sustainable
- Once rates stabilize, I will feel more comfortable
- May is always a bad month for the markets
At Meridian, we remain committed to a long-term strategy, because we believe market timing is almost impossible, at least over the long term.
Every spring, a familiar phrase echoes through financial media and investor circles: “Sell in May and go away.” It’s catchy, simple and like many investing adages, only partly true.
The idea behind this strategy is rooted in historical patterns. Over long stretches of market data, stocks have, on average, delivered stronger returns between November and April than from May through October. Some attribute this to reduced trading activity during summer months, as institutional investors and traders take vacations, leading to lower volume and sometimes weaker performance.
But before you rush to liquidate your portfolio, it’s worth pausing. Markets are far more complex than seasonal slogans suggest.
First, timing the market (even using something as seemingly reliable as seasonality) is notoriously difficult. While there have been years where selling in May would have preserved gains, there are just as many where investors would have missed substantial upside. Bull markets don’t follow the calendar, and unexpected catalysts like earnings, policy changes, geopolitical events (i.e. right now!) can drive prices lower or higher regardless of the month.
Second, transaction costs and taxes matter. Frequent buying and selling can erode returns, especially in taxable accounts. A strategy that looks good on paper may underperform once these real-world factors are included.
That said, the “Sell in May” mindset isn’t entirely without value. It can serve as a reminder to reassess your portfolio. Are your investments aligned with your risk tolerance? Have certain positions become overweight after a strong run? Using this time to rebalance, rather than exit entirely, can be a more prudent approach.
The chart below from Bespoke Investments emphasizes the point and still shows positive returns in May more often than not.
Source: Bespoke Investment Group
Ultimately, long-term investors tend to benefit more from staying invested than from trying to outsmart seasonal trends. Consistency, diversification, and discipline usually outweigh clever timing strategies.
So this May, instead of asking whether you should sell everything, a better question might be: Does my portfolio still reflect my goals?
Speaking of May, it looks as though my son will likely surpass my height this month (if he hasn’t already!). There is some dispute as to whether he is currently taller than me right now. I am not going down without a fight!
