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May 17, 2010


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This is the best commentary I've ever read on the age-old (and misleading) saying. Just last year, I had what turned out to be a serious conversation from someone who wanted to revise and update the investor's almanac concept. I thought he was joking at first, but it turned out to be serious, I advised against it. I guess he didn't like me raining on his parade too much, but he told everyone else to sell during the upcoming months. The stock market then went on a nice little rally during the time he predicted that it should have fallen. That's pretty much the last I heard from him.

Cyclical events do exist in financial markets but they must be supported by logical explanations and data.

'sell in May and go away' doesn't necessarily mean the market goes down over that period. Many of these sayings dont apply to the average investor as we know them today. (The saying is 200 years old). The summer months tend to 'churn' and some believe there is little point to trading that type of market. (Time is better spent recovering from the stress of the last 6 months.)

Volumes do tend to fall off. The 2nd tier person is on the desk and any big decisions have already been made for the summer. Markets have changed, and every year is different.

Maybe we shouldnt sell in May, but we should weight the activity with less validity.

Volatility tends to increase after the vacation months because people (on the street not the public) begin to position themselves for the end of the year.

The data clearly doesnt support the saying on the surface, but maybe it can provide a decision making context during that part of the year. Or maybe its completely worthless!

We'll continue investing throughout the year. When you can invest long-term, I agree that seasonal volatility seems like a silly reason to just stop. Our Roth IRA, 401k, and pension contributions are consistent and stable, but with our Scottrade funds, we simply buy dividend-yielding stocks - usually right after big drops. This method along with stock diversification has given us a solid equity account to go along with our retirement savings.

At this rate, the above data might look a little different next year.

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