Sell in May...No way

One of the most famous phrases of investors says that you should sell your shares in May. It also says that you should make sure to own them again in September. We were curious whether this saying is actually correct. Should you go on holiday after May and make sure to be back in September?

We set up an analysis to test the famous saying. As an investor, you should really reconsider this investors'knowledge', since it does not matches the results.

S&P 500 data

For our investment analysis, we used data of the Standard & Poor's index in New York. We have analyzed data going back to January 1993. Since we are interested in the investment results in the summer, we have tested all summers until 2016. This means we have 24 summers within our dataset.

The famous investors saying mentions the months May and September specifically. So we extended the summer a little bit: we have analyzed the months May until September for every year.

The first thing we did was to review the average performance of the Standard & Poor's 500 index for each month over the years. In the chart below, we have visualized this.

Performance S&P500 summer
Performance S&P500 summers 1993 - 2016

Besides the average performance of the S&P500 over the past 24 summers, we also wanted to know the number of years that a month showed a profit or loss. We have put this in the table below

Month
Profit
Loss
May
15
9
June
10
14
July
12
12
August
15
9
September
12
12

At the end of this article, we have added a table with the performance of each month per year. This clearly shows the difference and variability of the performance of the S&P500 every year.

Profit and Loss

As you can see from the data, there is a large difference in the S&P 500 performance in the months in the summer. This is not only true for the average performance of the months, but also over the years. In September the S&P index has lost in 4 years 7% or more (2001, 2002, 2008, and 2011). For July this was only one year (2002).

On the other hand, July and September were the only months that have shown a gain of the S&P 500 of more than 7 percent. The month July has shown such an increase twice (1997 and 2009).

Besides the performance of the S&P 500 over the years, it is also important to look at the volatility of the average monthresults. Within our analysis we use the standard deviation for the volatility. Of the months in scope, the month September shows the highest standard deviation. This means that the volatility is the highest for September. In other words: the certainty of a prediction, is the lowest for September. We have listed the standard deviation in the table below.

Month
Standard deviation
January
4.038%
February
4.290%
March
3.810%
April
3.778%
May
3.503%
June
3.450%
July
3.975%
August
4.564%
September
5.123%
October
5.441%
November
4.151%
December
2.838%

The summer of S&P 500

As the investment saying says, an investor should sell his shares in May. But you should remember to own them again in September. For simplicity reasons, we assume that the investor should not own shares in the months June, July and August. However, based on the historical results, we see something else.

Although June has shown an average negative return in the past 24 years, July was on average a good month for investors. May has been a positive month as well. So, if you sell your shares in May, make sure to sell them at the end of them month. But also make sure you are back in July.

We also see in our analysis that September has been, on average, the worst month for investors in the past 24 years. So you might want to skip this month, and make sure you are back in October.

Our analysis also shows that, based on the last 24 years, only the months June, August and September had an overall negative return on the S&P 500.

Investors' holidays

Now for the most important conclusion of our analysis: When should you leave?

The Standard & Poor's index gives us the best break in June and September. June is the month which has the most years of negative results (14 out of 24). And September is the month with the highest average loss. Besides that, while being on holiday, you miss the stress of your investments, since September showed the highest volatility.

S&P 500 returns in the summer

Year
May
June
July
August
September
1993
2.697%
-0.345%
-0.486%
3.833%
-1.342%
1994
-1.594%
-2.933%
3.233%
3.812%
-3.115%
1995
3.967%
1.427%
3.217%
0.445%
3.684%
1996
2.270%
0.350%
-4.494%
1.926%
5.047%
1997
6.321%
3.706%
7.926%
-5.180%
4.426%
1998
-2.077%
3.927%
-1.351%
-14.118%
5.990%
1999
-2.287%
5.220%
-3.102%
-0.518%
-2.508%
2000
-1.572%
1.729%
-1.570%
6.534%
-5.723%
2001
-0.561%
-2.660%
-1.020%
-5.933%
-8.506%
2002
-0.593%
-7.704%
-7.882%
0.680%
-10.885%
2003
5.484%
0.701%
1.803%
2.063%
-1.469%
2004
1.712%
1.480%
-3.222%
0.244%
0.585%
2005
3.222%
-0.251%
3.826%
-0.937%
0.375%
2006
-3.012%
-0.180%
0.448%
2.182%
2.250%
2007
3.392%
-1.885%
-3.131%
1.283%
3.381%
2008
1.512%
-8.814%
-0.899%
1.545%
-9.939%
2009
5.845%
-0.627%
7.461%
3.694%
3.055%
2010
-7,945%
-5.623%
6.830%
-4.498%
8.375%
2011
-1.121%
-2.172%
-2.000%
-5.498%
-7.421%
2012
-6.006%
3.522%
1.183%
2.505%
1.991%
2013
2.361%
-1.854%
5.168%
-2.999%
2.664%
2014
2.321%
1.578%
-1.344%
3.946%
-1.838%
2015
1.286%
-2.505%
2.259%
-6.095%
-3.056%
2016
1.701%
-0.172%
3.647%
0.120%
-0.497%
Gemiddeld
0,855%
-0,587%
0.687%
-0,457%
-0,603%