What’s true about the stock market wisdom: Sell in May and go away? Getty Images
“Sell in May and go away” is one of the most famous stock market sayings. But is it really the right strategy to sell stocks in May and only get back in in the fall?
Analysts at Deutsche Bank Research have taken a close look at the “Sell in May” rule.
Here are the sometimes surprising facts about four myths surrounding “Sell in May and go away”.
“Sell in May and go away” is one of the most famous stock market sayings. But is it really wise to sell your shares in May and then only buy back in in the fall? The question is particularly relevant given the current highs of the German stock index DAX this year. Capital market strategist Maximilian Uleer from Deutsche Bank Research examines in more detail whether the rule applies in the long term. He compared different variants of the “Sell in May and go away” strategy with several alternatives – and came to some surprising results.
Different versions were calculated for the analysis. A sale of shares at the end of April and the end of May, as well as the reinvestment at the end of August and the end of September. Historically, the best results came from a sale at the end of May and a reinvestment at the end of September. The simulation was carried out using the Stoxx Europe 600.
Here are four common sell-in-may myths and their truth.
1. Myth: Selling stocks in May and reinvesting in September beats a buy-and-hold strategy.
True, but only in the long term: From 1987 to 2023, investors with “Sell in May and go away” would have achieved an annualized performance of 9.0 percent. If they had held their shares over the summer (buy and hold), it would have only been 7.2 percent. The cumulative performance difference would be enormous. But this long-term comparison is also tricky. In 22 out of 36 individual years, the Sell-in-May strategy actually performed below average. So you could also argue that the sell-in-may strategy is basically as promising as flipping a coin.
The unusual outperformance of the sell-in-may strategy
Good years, bad years: Performance Sell-in-May on the Stoxx 600
2. Myth: Sell in May and go away is a long-term strategy
Incorrect: The statement would only be true if one believed that the extraordinary performance of the European stock markets in the summer of 1998, 2001 and 2002 would be repeated. If you ignore these three years, the “Sell in May and go away” strategy would have lost to a “Buy and hold” strategy.
Looking at the S&P 500 allows for an even longer history. Over the period 1966 to 2023, a buy-and-hold strategy in the S&P 500 would have performed significantly better than sell-in-May. The probability of outperformance in a single year is even lower over a longer-term horizon: in 40 out of 57 years, the Sell-in-May strategy would have underperformed the S&P 500.
Sell in May vs. Stoxx 600: A question of timing
3. Mythos: Sell in May and go away gilt weltweit
Incorrect: For US stocks, Sell-in-May would have performed worse than a simple buy-and-hold strategy. In the S&P 500 since 1987, the sell-in-may strategy would have cumulatively performed significantly worse than the buy-and-hold strategy. The probability of outperformance in a single year was also very low: in 27 out of 36 years, the sell-in-may strategy underperformed the S&P 500.
Sell in May loses comparison to the S&P 500
4. Myth: It is worth switching stocks into European government bonds in May
Correct: In retrospect, this strategy is more promising than a pure sell in May and go away. For the years 1998 to 2023, this “Sell-in-May” variant would have performed significantly better. However, this variant would only have outperformed the buy-and-hold strategy in 12 out of 25 years. Here too, tossing a coin would have produced similar results.
Sell in May and switch to bonds: Switching helps
Fazit: What is next to “Sell in May and Go Away”?
The major stock market declines between May and September in 1998, 2001 and 2002 tip long-term comparisons significantly in favor of Sell in May. The seasonality of the stock markets should therefore not be overestimated. The average monthly performance of the Stoxx 600 in September has been negative over the years at minus 1.3 percent. However, the median annual values were slightly positive.
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