Weekend Reading – Does Sell in May work?

Weekend Reading – Does Sell in May work?

Well hello!

Welcome to a new Weekend Reading edition, and given it is mid-May, I wonder if there is any truth to the Sell in May (and go away) seasonal investment strategy?

A few highlights on that in a bit…

First up, a few reminders:

I recently shared our latest dividend income update here, our portfolio that earns about $5.16 of every hour of every day even in our sleep or about $124 per day. 

If you have debt, you might be interested in learning about the 30-30-30-10 budgeting rule of thumb

And, while taxable dividend income is taxable, I still believe Canadian stocks (that pay some dividends i.e., lower-yields and higher growth stocks in particular) can be a great home in your non-registered investing account – I will continue to invest this way myself. 

Weekend Reading – Does Sell in May work?

As the phrase suggests, investors can employ a seasonal buying and selling pattern for their portfolio where historically there is at least some evidence that suggests stocks perform better during the colder months (November to April) compared to the warmer months (May to October).

According to some Morningstar research I found, there is some evidence that selling in May can outperform the broader TSX market – but it’s not a winning formula when measured by decades or over decades. 

Weekend Reading - Does Sell in May work

Source: https://www.morningstar.ca/ca/news/221204/reminder-dont-sell-in-may-and-go-away.aspx

For the U.S. market, I found that the S&P 500 has typically grown by around 2% on average from May to October, compared to a much stronger average gain of about 7% from November to April, according to Fidelity.

Source: https://www.fidelity.com/viewpoints/active-investor/sell-in-may

So, there is something small to this…but I don’t subscribe to any of it for these key reasons:

1. Past performance does not guarantee future results. Just because a seasonal investing pattern suggests certain results have occurred doesn’t mean things will continue. While these seasonality studies are very interesting, I simply don’t want to actively readjust my portfolio every year based on market history. If I was more active with my portfolio, there is the cost of my personal time, there are transaction costs to pay, and simply too much speculation/risk involved.

2. Compouding opportunities disappear when you’re not invested. As the Morningstar article explained:

“Perhaps the most powerful argument against doing so is when look at the effects of compounding. When you pull your money out of the market, the magic of compounding returns disappears.”

The entire meaning behind investing is to remain invested. And, since I love dividends, selling some or part of my portfolio in May would mean I miss out on not only dividends earned during the summer months but also some potential growth too. 

Sell in May (and go away) has roots in behavioural finance – a field of study that leverages psychology to understand how investors make financial decisions – studying sets of rational but usually irrational decisions.

There are many investing behavioural biases to avoid – I found a good list of biases here for your reading pleasure.

The key is not always to go out of your way to avoid all biases all the time, every single time, rather, understand them, recognize them and where possible, limit the impacts of making decisions with them. We wouldn’t be human after all if we didn’t have the odd hunch, intuition or investing itch to scratch. While optimizing decisions is great (to a point) I tend to live with the approach that usually good is good enough. 

I’ll leave you with this thought that I’ve mentioned on this site before:

“Investing is like soap; the more you touch it, the smaller it gets.” – Eugene Fama, Nobel Laureate. 

Investing is like a bar of soap

Image Source: Pexels, Karolina Grabowska

More Weekend Reading – Beyond Sell in May (and go away)

This theme aligns to this older Bill Miller investing letter, he perfectly captures the posture that most investors ought to have:

“When I am asked what I worry about in the market, the answer usually is “nothing”, because everyone else in the market seems to spend an inordinate amount of time worrying, and so all of the relevant worries seem to be covered. My worries won’t have any impact except to detract from something much more useful, which is trying to make good long-term investment decisions.”

Amazing stuff.

Accidentally Retired shared a few nuggets of investing wisdom on X this week designed to simplify his investing life…

Yes, you can be Your Own Advisor. 🙂

Dale Roberts feels the same…suggesting you need to invest in lower-cost funds than this RBC Balanced fund and save yourself about 2% per year in money management fees given over time “…active management and high fees strikes again.”

Walmart (WMT) stock popped this week thanks to besting earnings predictions. The retail giant’s market value is now over US$500 billion for the first time. (Disclosure: I/we continue to own WMT in our portfolio as a consumer defensive stock along with some potential for growth.)

For fun, you can see how WMT has performed in recent years compared to BRK.B and XAW we also own. 

WMT vs. BRK.B vs. VOO and XAW

Source: Portfolio Visualizer.

Over at Cashflows & Portfolios, we wrote about the Bucket Approach to manage portfolio organization for retirement income planning and spending. Some very successful DIY investors we know follow this approach. We mentioned in the article:

“The Bucket Approach gives you some flexibility to adjust to market conditions, inflationary conditions, tax regime changes (i.e., new capital gains proposals!) so that you remain flexible with your spending patterns over time.”

Nice Q&A at Tawcan with Nelson Smith on his lessons learned realizing some incredible investing success that allowed him to retire/semi-retire at age 39.

Dividend Growth Investor Q&A series – Nelson at Canadian Dividend Investing

Some key moments from that interview you might want to know about:

“I want cash flow today, along with a little capital appreciation over time. Dividend stocks are the best way to get this.”

And…

“My dividend portfolio should generate approximately $74,000 in 2024.”

And…

“This hybrid approach, combined with an average of 4-5% annual hikes in the dividends of the portfolio, and I figure I’ll easily have enough to ensure my withdrawals can increase at the rate of inflation.”

Very, very well done…geez…$74,000 per year earned from your portfolio. 

Inspiration from this Q&A reminds me of this post: how long should your stock market time horizon be? Probably as long as possible.

Big fan of Dividend Growth Investor. Did you know that Warren Buffett’s portfolio at Berkshire Hathaway is expected to generate almost $5 billion in annual dividend income?? OMG.

Honest Math enjoys the same good fun. @honest_math

Ha. 

For those renewing your mortgage, friends of this site RateHub helped out with this: should you extend your amortization at mortgage renewal time?

(Personally, we never did this. More borrowing time = more interest costs = more debt. That was our decision.)

5i Research did some heavy lifting for you and I as DIY investors: here are a few Canadian companies with very friendly shareholder policies.

Save, Invest, Prosper!

As always, check my Deals page – partnerships and discounts to help you make the most out of your money.

Check out my partnerships with:

  • Dividend Stocks Rock (including my deep lifetime discount from Mike!)
  • 5i Research
  • StockTrades.ca
  • LegalWills
  • Borrowell 
  • and more!

As always, you can also consider reaching out here for some low-cost financial projections services – anytime.

Cashflows & Portfolios

I launched this service with my DIY investor good friend – a service founded by DIY investors for DIY investors without the conflict of any advice, without costly fees (like some folks charge), while offering money-back guarantees because we’d expect that as DIY folks ourselves…

In fact, there are now two (2) low-cost services to choose from:

  • Done-For-You – we do the work and data entry, and provide your reports OR 
  • DIY – whereby you do all the work, you do your own data entries, and you get your own results in the software – we essentially open up some professional financial software for you to use to be your own retirement income planner!

Every returning member using our Done-For-You model gets a HUGE discount, automatically. Every returning DIY member also gets a nice discount, no questions asked. We also offer a money-back guarantee for both services. Try finding all of that anywhere else…!

As a My Own Advisor reader, you always get a discount off either service. Just mention my site. That’s it.  

Enjoy your weekend. 🙂

Mark

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

6 Responses to "Weekend Reading – Does Sell in May work?"

  1. I agree with the quote: investing is like soap – the more you touch it the smaller it gets. I have many of those biases listed and didn’t even know. Of course, only started doing my own investing in the last 5 years and didn’t really know what I was doing for most of that time. Originally thought I would rely on ETF a lot but during Covid I saw those xGRO and xBAL etf get devalued. Switched to a simplified approach: XAW and 20 or so stocks that are spread amongst Canadian and American stocks. Most are Canadian stocks because I hate paying the exchange cost even with Norbert’s gambit. – Christopher

    Reply
    1. I don’t mind XGRO, VGRO, etc. but yes, during COVID some of those got absolutely hammered but other stocks did too if you sold.

      I personally like XAW (for ex-Canada investing) and QQQ for my tech-growth kicker. I own about 20-25 CDN stocks and a few U.S. stocks that have done very well in recent years like BLK, WMT, BRK.B. but I will sell all stocks over time to fund our lifestyle. Just makes sense to live our life.

      XAW is easy since no need to exchange CDN <> USD 🙂

      Thanks for your thoughts, Christopher!
      Mark

      Reply
  2. The 18 Key Behavioural Finance Biases… No. 18 Paradox of Choice is probably the one thing to overcome if you are considering firing your bank financial advisor. With so much choice it can be hard to decide how and where to start. I was a reader of Money Sense and their Couch Potato investing and top 100 Dividend Stocks helped me get started. There are other resources available, such as this blog. It is good to see the additional resources for those wishing to go it alone. I know I would not have retired when I did if hadn’t taken control of our (my wife and my) investments. With all the things needing your attention in life it can be easy to let somebody else do your investing, but of course there is a cost. (This is starting to sound like a paid advertisement lol). After making the jump to do-it-yourself I find it interesting to hear about others who have done that same and their journey. Of course I still continue to learn… Mark, was there a key moment when you decided to invest for yourself? (you probably already mentioned it sometime but I am a somewhat new reader).

    Reply
  3. Great take. I agree! We hear a lot about sell in May, and I was a bit surprised to see the comparison between Canada and the U.S.

    But, like you, it won’t change my approach. If anything, I would like to try and diversify a bit, but it’s tough to do without triggering significant capital gains.

    I think the biggest move I could / should make is to migrate my workplace DPSP to entirely U.S. whereas now it’s 50/50.

    Reply
    1. Thanks, James!

      Ya, I won’t change my approach…I’m going to stick with my investing plan (hybrid investing) as much as I can.
      Mark

      Reply

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