It’s that time of year again. The clocks have gone forward, beer gardens are busy, and investors everywhere are dusting off that old market chestnut: “Sell in May and go away.”
But before you start shifting your portfolio into cash or bonds for the summer, some fresh research from Deutsche Bank suggests this bit of stock market folklore might not be worth the worry.
The idea behind the saying is simple and tempting. You sell your shares at the end of April, avoid the supposedly sluggish summer months, then buy back in come autumn when the market is said to pick up again. Over time, that should help you avoid downturns and boost returns. Right?
Well, not quite. Deutsche Bank’s latest “Myth Buster” report, led by strategist Maximilian Uleer, has put the Sell in May strategy through its paces.
Decades of data
Using decades of data across European and US indices, they found that while there were years when the strategy outperformed, the success rate was far from consistent.
If you followed the Sell in May playbook since 1987 in Europe, you’d have beaten a simple buy-and-hold strategy in just 14 of the last 38 years; bout the same odds as flipping a coin.
Even when the strategy did outperform, that outperformance was heavily concentrated in just a few years, notably 1998, 2001, and 2002.
Underwhelming results
Strip those out, and the supposed edge all but vanishes. In more recent times, it’s been especially underwhelming: the Sell in May approach underperformed in 7 of the past 10 years. In 2024, following it would have actually lost you money.
The story is no better across the pond. For US investors, the strategy trailed a buy-and-hold approach over the long term.
The research shows it only worked 22 times out of the last 52 years. Even when substituting cash with government bonds over the summer, which boosts returns, the strategy still lagged behind the broader market in most years.
Why doesn’t it work?
One reason is the randomness of market returns. Yes, markets can wobble in the summer, especially when volumes drop, but meaningful moves tend to be driven more by interest rates, earnings, and geopolitics than the calendar.
Another is that seasonal averages are distorted by a few big outliers. You’d need to perfectly time those years to benefit.
The takeaway for private investors is straightforward. Timing the market is hard enough without relying on shaky seasonal trends.
As Deutsche Bank puts it: You can sell in May, but you might as well toss a coin.
For most long-term investors, sticking to a clear investment strategy grounded in fundamentals is still the best way to enjoy both the summer... and your returns.