Sell In May And Go Away – Part 2

Most traders and investors have heard that you need to sell in May and go away. Is this just a myth or is it correct? Three years a go I wrote an article about this, but this article covers a longer time span.

Let’s find out by looking at the historical numbers:

My data is the S&P 500 index from 1960, downloaded from Yahoo/finance, until end of April 2020. The index doesn’t include dividends and is thus excluding a vital part of the performance. However, the dividends are distributed throughout the whole year and shouldn’t distort the results.

Let’s start by looking at the performance on a monthly basis from one monthly close to another:

MonthAvg. Profit%Win-ratio %Profit factorMax loss
January1.18591.64-8.6
February0.0455.70.98-10.9
March0.8962.31.7-12.5
April1.5272.11.37-9
May0.0957.41.01-8.6
June-0.0753.30.9-8.6
July0.63501.45-7.9
August0.1558.31.02-14.6
September-0.55450.66-11.9
October0.9561.71.45-21.8
November 1.4268.32.2-11.4
December1.3173.32.6-9.2

The profit factor is defined as the gross profit divided by the gross loss (including commissions) for the entire trading period. As a rule thumb I like this number to be above 2 as a stand alone trading system.

Clearly, the table shows that May is not a good month, but it still has three months that have performed worse. For some reason September has been the worst month by all parameters. Unfortunately, I can’t come up with any rational explanation for why some months are worse than others.

The numbers tell us that the period from October to the end of April is by far the best period, and opposite the period from April until October seems to be the worst.

This is the equity chart of being invested 100% from the close of September until the close of April every year (and being in cash from May until September, starting with 100 000 in equity):

Being 100% invested from October to May has been a good strategy.

The numbers indicate an average return of 7.8%, a win-ratio of 75%, a profit factor of 4.2 and a max drawdown of 37%.

If we buy on the last day of April and sell on the last day of September we get this equity chart:

Being invested from May until September has been dismal.

Quite remarkably you practically have no profits after 60 years of being invested from May until September! The average return per period is a tiny 0.33%, and the largest loss is 29.6%.

Is this info any helpful for any investor or trader? Most likely not, but still quite an interesting fact.

Disclosure: I am not a financial advisor. Please do your own due diligence and investment research or consult a financial professional. All articles are my opinion – they are not suggestions to buy or sell any securities.