almost 2 years ago • 1 min
There’s a well-known saying in investing: “Sell in May and go away”. It’s become a particular favorite because investors know that stocks have historically performed much better between November and April than between May and October.
But there’s a chart doing the rounds on social media at the moment showing that of all those months, stocks perform best in April: they’ve risen on average 1.7% since 1964, outstripping the next best at 1.4%. What’s more, returns have been positive 74% of the time since then – again, the highest compared to every other year.
So does that mean you should start throwing money at stocks now that we’re in April?
I doubt it. Thing is, no one’s convincingly explained what might cause this relationship. Sure, they’ve offered up a couple of suggestions, from end-of-quarter rebalancing to a sudden windfall of investment capital from tax refunds. But neither of those stand up to scrutiny. For one thing, investors rebalance at the end of every quarter, and this performance isn’t reflected in July, October, and January. And to the tax refunds point: there’s simply no evidence that this is the case.
This isn’t to say there’s no reason for it: there could very well be. But it’s also possible that it’s sheer chance. The point is that if you don’t know either way, you’re probably better off not betting your hard-earned money on relationships you – or anyone else – are unable to explain. After all, if you don’t know what causes the relationship in the first place, you won’t know what causes it to falter.
Of course, you might want to invest on the basis of this pattern in hopes that it becomes a self-fulfilling prophecy. I’m just not sure I’d risk my money on hope alone…
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