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'Sell in May and go away' may prove mistaken in many markets this year

In most countries, the old wise saying to ‘Sell in May and go away’ may not be wise this year. Most analysts predict a continued rally at the stock market- they instead say ‘No way this May’!

Porbunderwalla Kersi
Porbunderwalla Kersi
Historically, for the past 50 years or so, investors have reaped massive gains if they only invested in the major Western markets (US, Canada, Japan most of Europe incl. UK) from November 1st until April 30th, and avoided equities from May 1st until October 31st. However for the last three years, the returns are significantly enhanced by selling in the month of May.

Strong historic foothold
If you had invested $10,000 in the Dow in 1950 and only kept the money in stocks from November through April, you would have had $684,073 as of the end of 2011. If you reversed the strategy and invested for the May-October period, you would have lost $1,024 over the same 61-year period.

If we then open another ancient 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.

Impending red flags
However, the popular stock market motto "sell in May and go away" might be proved wrong this year, as a huge bunch of positive indicators including excellent 1Q 2013 corporate earnings and foreign fund flows, have made investors stick to their stocks this may.

On the other hand, there are also pessimists who keep on reminding us of the challenges that
China faces in keeping inflation under control and the risk of slow growth affecting the world economy, the Euro zone crisis, the fiscal cliff scenario caused by the deficits and sovereign debt troubles of USA and Europe are other vital ingredients of the impending red flags to prove otherwise.

The continued loss in the strength of global recovery and the possible determining when the global equity rally will end and the policymakers decide they have to tighten monetary policy considerably are other factors of concern.
Four Fiscal Cliff Scenarios from Credit Suisse.

David Stockman, a re-born leading conservative Reaganite, now blames some of the economic program that he once supported for the 2008 meltdown and the current sluggish recovery. 'We're Going to Have a Crisis' is what he says in his new book. The onetime Reagan budget chief has gone from supply-side guru to prophet of doom -- and predicts rather stormy times ahead for the U.S. and thereby the rest of the global economy.

Check your premises
So maybe you will try to avoid the volatile summer, in spite of the pretty telling statistic that the historic cycle rarely fails to deliver, you could use the exercise to review your risk appetite, perhaps take the current profits and reduce your exposure to equities. Some may decide to bail from stocks and increase the assets into short-term Treasuries and money market accounts.
Others may evaluate their holdings portfolio in stocks or bonds or assess whether to invest in developed, emerging or BRIC markets.

No matter what you decide you can always come back on St. Legers Day, a phrase, of British origin. St. Leger is not a saint, nor a saint’s day, as one might think. It is the name of an English horse race dating back to the 1700s that takes place in September.

Kersi Porbunderwalla is the founder and CEO of Riskability®, Copenhagen Compliance® and Copenhagen Charter®.
After his early retirement from ExxonMobil, Kersi has been involved in several Global Good Governance, Risk Management and Compliance (GRC) Projects for multinationals like IBM, Shell, BP, Volvo and others.
He continues to implement GRC journeys for a variety of clients to develop custom tailored GRC folder that includes methodologies, roadmaps, and specific solutions to assignments, training and certification.
Kersi conducts workshops, seminars and conferences that focus on developing and implementing GRC applications & frameworks into operational environments.
He is a consultant, instructor, researcher, commentator and practitioner on 4 continents.

Vendredi 24 Mai 2013