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Should you sell in May and go away? Why market timing could cost you big
Jacob Falkencrone
Global Head of Investment Strategy
Key points:
- Seasonal investment patterns exist, but historical trends aren't foolproof.
- Staying invested year-round consistently outperforms seasonal timing strategies.
- Discipline, diversification, and patience typically yield the best long-term investment results.
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Imagine this: it's early May, and you're preparing to close out your investment positions just because you've heard that summer markets tend to slump, especially during periods of heightened economic uncertainty or volatile geopolitical events. You're not alone—this "sell in May and go away" advice has echoed across trading floors for centuries. But is stepping aside for the summer months genuinely wise, or is it just another investing myth that could cost you?
Understanding the old market rhyme
Originally coined among England’s wealthy elite between the late 17th and 18th centuries, the full proverb reads: "Sell in May and go away, and come back on St. Leger’s Day." During summer months, affluent investors would retreat from bustling London to their countryside estates, returning only for the mid-September St. Leger horse race. This seasonal departure was believed to reduce market activity and consequently lower summer returns. While this piece of investing folklore is intriguing, it begs a provocative question: could this centuries-old strategy still make sense in today's complex financial world?
Seasonality: More than just superstition?
Historical data provides some credibility to this seasonal advice. Since 1950, S&P 500 returns between November and April have consistently surpassed those from May to October. Indeed, cumulative returns during winter months greatly exceed those of summer.
However, the data isn't entirely black-and-white. While the trend generally holds, relying solely on this calendar pattern is risky. Significant exceptions occur regularly, and strictly following this rule might mean missing critical gains. For instance, investors adhering rigidly to this rule would have missed substantial market recoveries after periods of economic uncertainty.
Digging deeper into the numbers
I've delved into the numbers to see what history reveals about this popular saying. A detailed analysis of the S&P 500 since 1950 uncovers some important insights:
- November to April typically offers stronger returns compared to May through October, though summer months usually remain modestly positive.
- Month-by-month variations show pronouncedly weaker periods (e.g., September) and stronger ones (e.g., November and December).
So, is it truly a good strategy to 'sell in May and go away'? To answer this, I've also examined the numbers from a more recent perspective, analysing the S&P 500 since 2000:
- Investing solely from November to April delivered returns around 210%.
- Investing only from May to October yielded a mere 29%.
- Staying invested all year round significantly outperformed both, with cumulative returns close to 299%.
Clearly, maintaining consistent market exposure outshines seasonal timing strategies. Additionally, even during traditionally weaker months, markets often provide crucial opportunities, as unpredictable events can lead to unexpected rallies.
Markets defy seasonal expectations
While historical trends may suggest caution during summer months, real-world examples frequently defy this logic. Consider the summer of 2020—despite initial uncertainty amid the global pandemic, the S&P 500 rallied impressively, rewarding investors who stayed invested. Similarly, summers following sharp downturns have often witnessed dramatic recoveries, such as the post-financial crisis recovery in 2009. Another striking example was the summer following Brexit in 2016, when many expected prolonged turmoil but instead saw markets swiftly regain momentum. These examples emphasize the unpredictability and potential costs of seasonal market timing.
Moreover, market behavior is increasingly driven by fundamentals, macroeconomic factors, geopolitical events, and central bank policies, rather than historical seasonality. Investors who focus excessively on the calendar may overlook these crucial elements.
2025: Exceptional year or market noise?
This year, heightened volatility stemming from tariff disputes, geopolitical tensions, and inflation concerns could entice investors to follow the seasonal advice more closely. Yet, history has repeatedly shown that markets rarely follow neat seasonal scripts. Summer months often produce surprising rallies, catching seasonal traders off guard. Investors must remain cautious of narratives that overly simplify complex market dynamics.
The dangers of market timing
Legendary investor Warren Buffett cautions strongly against attempting to time markets, famously stating: “I never attempt to make money on the stock market. I buy on the assumption they could close the market tomorrow and not reopen for five years.” His longtime partner Charlie Munger adds succinctly: "The big money is not in buying and selling, but in waiting." Both reinforce the superiority of patience and discipline over short-term seasonal tactics.
Indeed, attempting to predict short-term market movements consistently proves challenging. Research repeatedly indicates that market timing strategies often result in subpar returns due to missed opportunities and transaction costs.
How to invest wisely beyond seasonal clichés
Investors typically fare better remaining invested consistently rather than attempting to predict short-term fluctuations. Markets often deliver significant gains in short, unpredictable bursts, meaning even brief market absences can seriously impact long-term returns.
Rather than rigidly adhering to seasonal patterns, investors should prioritize regular portfolio reviews, proper diversification across asset classes, and maintaining a disciplined long-term investment perspective. Strategies such as systematic monthly investing, also known as dollar-cost averaging, help manage market volatility, reduce emotional biases, and provide consistent portfolio growth.
Key lessons to keep in mind
- Historical trends exist but are not guaranteed.
- Market timing rarely succeeds: Long-term investments generally yield better results.
- Volatility and uncertainty are permanent market features—avoid impulsive decisions.
- Disciplined, consistent investing (e.g., monthly contributions) remains the most reliable strategy.
- Economic fundamentals and geopolitical factors often outweigh simple calendar-based strategies.
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