Investing Myth: "Sell in May and Go Away." 2 Reasons to Ignore This Investing Adage.

Key Points

• Time in the market beats market timing in the long run.

• The "sell in May" strategy has been helpful in less than half of the last 10 years.

• 10 stocks we like better than S&P 500 Index ›

"Sell in May and go away" is a popular investing proverb. The idea is to capture the upside of bullish market trends such as the holiday shopping season, year-end portfolio rebalancing, and lots of full-year and first-quarter earnings reports coming out early in the year and then get out of the market for several months. So you sell some of your stocks in early May, sit on that cash for a six months, and reinvest it in the fall.

There is some statistical support for this idea, as the S&P 500 (SNPINDEX: ^GSPC) has performed slightly better from November to May than the rest of the year in the long run. But there are a couple of serious flaws in the "sell in May" theory.

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Old market trends can change

The market forces behind the "sell in May" adage were strong once upon a time, but things have been different in recent years. The S&P 500 rewarded "sell in May" investors in just four of the last 10 years. The reverse pattern emerged in the other six years (including 2022 to 2024).

If you sold in May and went away in any of those years, you would have seen worse returns. And the differences were sometimes quite large, with a 15.5% "sell in May" disadvantage in 2022 and a 15.2% lag in 2024.

Market timing is a game of chance

The changing trends underscore the fact that short-term market moves are unpredictable. Even master investor Warren Buffett never had a clue what the stock market might do in the next week, next month, or next year.

With a strict focus on long-term trends and detailed analysis of specific stocks and businesses, you can beat the market in the long haul. Basing your buys and sells on strict calendar patterns probably won't have the same positive effect.

So the next time you think about selling in May and going away from Wall Street for the next six months, please reconsider. You can drop this rule of thumb for good.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.