We all know the phenomenon of “sell in May and go away” in the stock market. But is that really an effective strategy? Here’s a couple of articles we read recently on the subject:
“The argument for “going away”: Over the last 12 months, investors who held to this belief made out pretty well. From May 1-November 1, 2011, the Dow lost 6.7%. From November 2011 through April 27, 2012, it gained 10.7%.
If we open a historical window – specifically, The Stock Trader’s Almanac – back to 1926, we see the S&P 500 rising 4.3% on average during May-October and gaining an average of 7.1% from November-April.”
“On Wednesday April 18th, Jeffrey Hirsch provided election year statistics for the “Worst Six Months”, May to October. The results of that research began in election year 1952 and ran through 2008. 1952 was chosen as the starting point of the study primarily because the U.S. economy (and the global economy) was substantially different prior to that year than now. From 1901 to 1951 farming made August the best performing month of the year. This is no longer the case and August is now the second worst month of the year. In response to inquiries about years prior to 1952, the table from that post has been updated to include all election years from 1904 to 2008.
By including an additional 12 election years in the table, the results differ greatly, but this was expected because, Augusts’ top-ranking performance, the roaring twenties, a Great Depression and two world wars made those years significantly different (a great understatement). In fact, “Sell in October” would have been appropriate. Prior to 1952, May-October was up 32 of 51 years with an average gain of 3.3 % while November-April was up 29 of those same years averaging a gain of 2.4%. Since 1952, November to April (as of today) has been up 47 times and down 13 with an average gain of 7.5% while May to October has been up 35 and down 25 with an average of just 0.2%.
Before deciding if “Sell in May” in this election year is in the best interest of your investment objectives consider this; since 1940, there has been only one double-digit gain from May to October and the average gain is a paltry 0.3% (excluding the best and the worst, the average is 1.2%).”
Graphic from Stock Trader's Almanac
We believe that investors should be careful to not invest or pull their capital based simply on a season, time of year or “gut feeling”. This is definitely an interesting and risky time in the markets, and it’s important to know about the trends and thought-processes – but not necessarily to follow them.
Thanks for reading our podcast summary. If you want more details on what is discussed on the blog, please listen to the full podcast here.
Listen to Doug talk about the short-term and long-term trends, divergences between the U.S. markets and international markets, AAPL news, the Federal Reserve meeting and policy, European debt crisis, and volatility in the markets.
This week’s video covers a lot of ground, so watch it and remember to keep a close eye on the market for better buying opportunities later this year.
Doug Fabian’s next live public speaking event will be in Las Vegas at the Money Show, where we’ll have about six different opportunities to present, and a special opportunity for our subscribers. Please check out moneyshow.com to register or for more information.
First, Europe represents 25% of the global economy. Spain is the fourth largest economy in Europe and it is in economic shambles. The Spanish government is cutting severely in entitlements (unemployment benefits, pensions, etc.) and there is no job growth in Spain. People in Spain are more conservative with their money right now, causing a contraction in their economy, looking to contract a total of 7% this year. (To put that 7% in perspective, that’s about how much the U.S. contracted in 2008 – we all know how that affected the markets and economy.)
Second, Apple Computer is a phenomenal company, and it’s almost a stock index in itself. Apple stock alone accounted for 36% of all the earnings in the S&P 500 in the first quarter. We bring this up because if APPL was to falter, we would see some serious issues in our stock market.
Lastly, we want to remind you that stock markets go down 3-5 times faster than they go up. This is an unfortunate reality, but one to keep in mind as you watch the fundamentals and the global economy in changing times.
Before you go on a long road trip, it’s always smart to make sure you have water, flashlight and other emergency supplies in your car. We think of your life and your money as a long road trip – we all have a destination, goals along the way and a few unexpected turns in the road, but with a good road map, some emergency supplies and a little common sense, your financial road trip can fulfill your goals and get you to your destination. We think it’s wise to be educated and prepared in life and investing.
In investing, here are a few turns in the road that might be coming up: a weakening U.S. dollar, inflation or deflation, upheaval in the bond and stock markets, or changes in the real estate market. These can all risks to your capital, or can be used to your advantage, depending on how prepared you are.
Understanding market movements is like your road map on that long car trip. You have to realize what inflation and deflation will do to your capital, and what your on-ramps are (meaning when and why you put your capital to work) for investing.
You need to know what your “off-ramp” is as well – what is your exit strategy for your investments? What is the circumstance in which you would sell your stocks or bonds and are you even aware of what you own?
These changes in the markets can be very confusing if this is not your full-time job, which is why we are here – making podcasts, writing on the blog and helping you make decisions. If you are not sure about your financial goals or you just want a second opinion, please call us at 888-300-3684. Our advisors want to help this investing road trip be a pleasant one and help you get to your destination in the best way possible.
(This is a podcast summary. Please tune into Doug’s podcast this week for even more details on these topics, and feel free to share this information with others who might benefit from our perspective.)
There has been some market weakness lately, and three recent news items can help us make sense of this:
Jobs report – 120,000 jobs created in March, 200,000 expected
In the last week, we’ve seen a market high and several dips. As we often say here at Fabian Wealth Strategies: the stock market falls 3-5 times faster than it goes up, and today we are seeing that come true. Yet another reason to be suspicious of any rallies in this fragile global economy.
Remember that bonds and stocks have an inverse relationship. If we get bad economic news, bonds will do well and stocks will do poorly, just the opposite during good news.
If you’d like an opportunity to hear Doug’s take on your questions or opinions, please send an email to askdoug(at)dougfabian(dot)com
Also, if you want to see and hear our perspective in person, hear some other great speakers and enjoy a getaway in Las Vegas, sign up for the Money Show, May 14-17 2012. Doug will have six different opportunities to present and it’s always a great event, so please check out moneyshow.com to register.
As always, if you have questions about your personal portfolio, please call us at 888-300-3684 and one of our advisors will be glad to help.
We think that if you don’t already have positions in the market, the prospects of having significant gains (meaning gains that are worth the risk of entering new money into the market) in the next few months are highly unlikely. We believe that the financial markets are likely to correct in the short-term, and the market is still very volatile.
The stock market is running on the psychological hope that the economy will grow at a greater rate than 3%, and we will see if that ends up happening this year. The sentiment in the market right now is very “bullish” even though we don’t agree with that perspective.
Regardless, remember that sentiment is a contrary indicator for the stock market. Meaning that, when everyone is feeling great about the market is probably not the time to jump in to an investment. We think that when investors start jumping ship and the markets correct once more, as we expect in the next few months, that is when savvy investors should think about placing their capital in the market, buying positions that are well-researched and on “sale”.
We read a lot of news here at Fabian Wealth Strategies, and occasionally we like to link up to the topics we’re reading and give our readers a chance to see the weekly news that we think is important.
As a reminder, our take on the markets is somewhat pessimistic and “bear-ish”. We think that opportunities for growth will come soon, but that opportunities for heavy losses are currently the most likely in this volatile market. Capital preservation is currently our priority for our clients.
Here’s some of the stories that are informing our point of view:
To hear Doug’s commentary on this week’s news in detail, listen to the podcast here. Also, check back tomorrow for an update on international news and how it effects your investments.
In a word, no; we don’t believe so. To use a cliche, the proverbial can has been kicked down the road, and pain from the European debt crisis is far from over.
Some people are tempted to liken the debt crisis in Europe to our own struggles a few years ago here in the United States. However, there are three important variables to remember when contrasting the European debt crisis of today and the U.S. fiscal crisis in 2009.
The U.S. implemented TARP, (basically, a way for banking institutions to borrow from the Federal Reserve)
The U.S. created the Stimulus package
The U.S. has had little to no austerity measures (in fact, there was the opposite, with expansive unemployment benefits provided)
In contrast, the Europeans are requiring austerity and struggling through very high unemployment and cut pensions, plus much higher taxes. Add to that the very high cost of energy and basic living costs in Europe, and we feel this is bound to be a slow recovery, if a recovery at all.
We mentioned the triple threat to your financial portfolio last week, and we encourage our readers and listeners to not get caught up in the idea of “lost opportunity” during these first few months of 2012. We are still convinced of the risks that weak fundamentals and global economic contraction pose on our investment capital, and we encourage you to be cautious when investing.
This is a podcast summary. For complete details on the items discussed today, please listen to the full audio here.
(This is a podcast summary. Please tune into Doug’s podcast this week for even more details on these topics, and feel free to share this information with others who might benefit from our perspective.)
We believe that right now, investors are being lulled to sleep by the appearance of healthy upward momentum in the markets, which could be a mistake.
There is a distinct, fascinating psychology of investing that it’s wise to be aware of. On one hand, there is the greedy, euphoric, no-risk mentality of an upward-swinging market, and on the other, the fear, hysteria and panic of market lows. Remember the “Tech Bubble” in 2000, when greed took over and investors made unwise and often costly decisions?
Again this year, greed is the dominant emotion in play, but we feel that it’s essential that you be aware of this psychology and how it can affect your capital. Thinking of your investments as impenetrable and letting yourself be lulled to sleep or wooed by greed is a deadly mistake with your investments.
What’s important to note is that there is a lot of global economic weakness. We’ve talked about this in-depth and we will continue to do so, but we still encourage you to pay close attention in the markets because things will change quickly in the near future.
Opportunities are coming, we just need to pay attention to our allocations and our ability to react to an unsteady environment. We wrote back in 2008 that the state of the economy would make all the difference for investors – since the European debt crisis is not yet resolved and there is likely more risk on the way, we need to be aware of the truth that the more things change, the more they stay the same.
For several months now, we’ve believed that there would be a lot of risk in the first part of this year, and some great buying opportunities in the second half of this year. However, the stock market has been performing quite well so far in 2012, so you might have missed some upside opportunity if you followed our advice. There are two belief systems about what this means:
The European debt crisis is either fixed or doesn’t matter, and investors should engage in this market as soon as possible. The economy is improving and markets are rising.
Europe is entering a recession and if Europe is entering a recession, it will effect China and the U.S. and create a global economic slowdown. Risk is high and investors should be cautious and conservative with you capital.
We are in the second group, as we have been for some time, and we are still encouraging our audience to be cautious. We do believe that good investment opportunities are coming soon, but the time to buy is not right now.
If you want more information on this, please check out our special report for more information on how to invest wisely. If you have questions about your personal portfolio, please call us at 888-300-3684 or email askdoug(at)dougfabian(dot)com
