'Sell in May and walk away'

As editor of Nyack, N.Y.-based The Hirsch Organization’s annual Stock Trader’s Almanac, now in its 37th edition, Hirsch has given stock-trading advice on CNN and CNBC.

He says smart investors sell stock holdings in May, move to bonds or other fixed-income investments for the summer, and jump back into the stock market in November for the winter rally.

It’s a technical-trading strategy that’s meant to invest money in stocks during the “best six months” of the stock market – November through April – and avoid the “worst six months” – May through October.

“It’s the general rhythm of our society that tends to drive this,” said Hirsch of the trend he’s purporting.

Local experts are less enamored by the philosophy.

Missouri State University economics professor Tom Wyrick has heard the “Sell in May and walk away” adage, but he doesn’t think it always holds true.

“There’s a lot of these rules of thumb – the Super Bowl indicator and the January indicator and all that,” Wyrick said. “People draw correlations between things that are seemingly unrelated and then they try to make something out of it.”

Hirsch offers this illustration to prove his point: A compounded $10,000 investment in the Dow Jones Industrial Average 56 years ago would have returned $534,323 under his “best six months” strategy. If invested only in the “worst six months,” the same investment would have lost $272.

The most recent “best six months” period, which ended April 28, saw an 8.9 percent increase in the Dow, while the most recent “worst six months,” which ended in October, only saw a 2.4 percent gain. Hirsch notes that even the 2.4 percent gain is higher than historic averages.

The reason for the market movement is simple, Hirsch said. Holiday sales and cold weather lead people to stay inside and trade stock more in the winter. Warm weather, higher energy prices and vacations keep people from trading as much in the summer.

Hirsch said November, December and January are consistently the months that stocks rally the most.

Opponents believe fundamental stock analysis – examining a company’s financials and management – is much better than using technical trading tools such as Hirsch’s.

Dean Arens, a financial adviser at Planvest Capital Management LLC, 1530 E. Primrose St., recommends a balanced portfolio of bonds along with stocks from companies of varied sizes.

Paul Nowak, finance professor at Drury University, agrees with the fundamental approach.

“Past stock price behaviors do not reflect necessarily the future,” Nowak said.

However, Hirsch said fundamental and technical analysis could co-exist.

“It’s good to have a little seasonality on your radar screen so that you’re not just going into a company with great fundamentals at a point when stocks are likely to fall, and you can get whipsawed out of it,” Hirsch said.

He said even a fundamentally sound stock can get pulled down by a bad bear market. That may be on the horizon this summer.

All signs point to a customary drop in markets during this “worst six months.”

The Dow may not have any direction to go but down. It closed at 11,400.28 on May 3; the last time the Dow was as high was early 2001.

High energy prices, war abroad and increasing interest rates all signal a drop.

“There seems to be a whole host of outside factors … that indicate the market is ripe for a fall,” Hirsch said.[[In-content Ad]]