The time-value-of-money concept forms the basic foundation for all investments.
And like anything having to do with people, there are rhythms to the stock market that are a function of time– whether it is the time of the trading day or a particular time of year.
One of these seasonal rhythms is so strong it has given birth to its own adage. Every investor knows it.
It’s the admonition to “Sell in May and go away,” and it’s a proven strategy that results in gains for investors.
According to Sy Harding, author of the book “The Bear: How to Prosper in the Coming BearMarket:” “Over the long term, the market makes most of its gains each year in the winter, and when there is a serious correction, it most often takes place in the summer. We’ve known about that pattern for decades. The pattern has been confirmed by independent academic studies.”
The Logic Behind “Sell in May and Go Away”
There are a myriad of reasons for this, most having to do with the cash flow aspects of the business calendar.