The Flinchum File

Thoughtful Economic Analysis and Existential Opinions
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“Sell in May?”

One of the oldest proverbs of traders (not investors) is to “sell in May and go away.”  The research is pretty compelling that stocks do much better in colder months than warmer months.  I don’t think this year will be any different.  There are just too many unresolved issues, even more so than usual. 

Does that mean a person should sell all stocks now and remain in cash until next winter?  Absolutely not!  Prudent investment decisions are not “black & white” or 100%.  It is not a question of being in the market or being out of the market.  It is a question of how much cash should a person hold during the warmer months to smooth the summer volatility.

Selling everything requires a precise market timing decision.  Which day is best?  How do you know the next day will not be better?  On the other side, buying back into the market requires a market timing decision.  How will you know which day is the right day or which week or which month to go back into the market?  Tight-rope walkers like traders may think they are smart to know such things, and I hope they are.

Warren Buffett once said he had no idea what the stock market would do tomorrow, but he did know where it would be in twenty years . . . up!   That’s why I don’t think it is ever prudent to be 100% out of the market at any time.  You never know when the bull will return.  Investors in the long-term don’t have to worry about it.

But, I do like a little extra cash right now.  It’s a long time before colder weather.