Sell in May

Since I started trading I have had the impression that I lost money in the summer. It was a feeling and I have never made a proper analysis of the phenomenon till now. I guess it was because my overall performance has been good enough to carry some dead weight and still provide me with a decent living. A combination of a couple of poor years trading and higher than normal living expenses have eaten into my capital base. This has made me think hard about where my profits are generated. I can no longer be complacent about making the odd loss.

I have therefore prepared a seasonal analysis of how markets move in order to organise my trading better. The results are startling because of how powerfully the support the hypothesis that summer trading is for the birds.

I looked at the movement of the following indices:

• UKX (FTSE 100)
• NMX (FTSE 350)
• ASX (FTSE All Shares)
• DJI (Dow Jones Industrials)
• GSPC (S&P 500)

I looked at the changes in three four month periods which can loosely be described as Spring Summer and Winter. 

• 1st January to 30th April
• !st May to 31st August
• 1st September to 31st December

I carried out the analysis over the past 10 years. Here are the numbers:

1Jan to 30 Apr
	UKX	NMX	ASX		DJI	GSPC
2013	9.0%	9.5%	9.6%		13.2%	12.0%
2012	3.0%	4.2%	4.4%		8.2%	11.2%
2011	2.9%	3.0%	3.0%		10.7%	8.4%
2010	2.6%	3.8%	4.1%		5.6%	6.4%
2009	-4.3%	-2.0%	-1.6%		-6.9%	-3.4%
2008	-5.7%	-5.6%	-5.7%		-3.4%	-5.6%
2007	3.7%	4.1%	4.2%		4.8%	4.5%
2006	7.2%	7.9%	8.0%		6.1%	5.0%
2005	-0.3%	-0.6%	-0.6%		-5.5%	-4.5%
2004	0.3%	1.2%	1.4%		-1.8%	-0.2%
AVERAGE	1.8%	2.6%	2.7%		3.1%	3.4%
1May to 31 AUG
2013	-0.6%	0.1%	0.2%		0.7%	3.2%
2012	-1.7%	-1.6%	-1.6%		-1.4%	0.1%
2011	-11.1%	-11.3%	-11.2%		-9.3%	-10.6%
2010	-5.9%	-5.8%	-5.8%		-9.0%	-11.6%
2009	15.7%	15.8%	15.9%		15.6%	16.3%
2008	-7.4%	-7.3%	-7.4%		-11.3%	-9.0%
2007	-1.8%	-2.3%	-2.4%		1.7%	-0.8%
2006	-1.9%	-2.1%	-0.1%		0.3%	-0.1%
2005	10.3%	11.0%	10.9%		2.8%	5.5%
2004	-0.7%	-0.9%	-1.0%		-0.9%	-0.5%
AVERAGE	-0.5%	-0.4%	-0.3%		-1.1%	-0.8%
!Sept to 31 Dec
2013	5.2%	5.8%	5.8%		11.9%	13.2%
2012	3.3%	3.9%	4.1%		0.1%	1.4%
2011	2.8%	1.9%	1.6%		6.3%	4.4%
2010	9.9%	10.6%	10.7%		12.7%	16.4%
2009	12.3%	11.6%	11.2%		12.0%	11.7%
2008	-20.9%	-22.3%	-22.6%		-24.0%	-29.6%
2007	2.4%	1.2%	0.8%		-0.7%	-0.4%
2006	4.6%	6.1%	6.3%		8.7%	8.2%
2005	5.4%	6.4%	6.4%		2.5%	2.2%
2004	6.9%	7.8%	8.0%		6.0%	9.6%
AVERAGE	3.2%	3.3%	3.2%		3.6%	3.7%

In all cases the indices registered average falls in the summer periods.in sharp contrast to the rises registered in the spring and winter months. In the spring period of the year the UK markets registered positive movements in 70% of the years while the US markets were positive 60% of the time.

In the Winter period the UK markets were positive 90% of the time while the US markets made a profit 80% of the time.

Performance in the Summer months was slightly more muddled with two years (2005 and 2009) being big exceptions to the norm. 2013 was also slightly better than normal. Overall we can say that that summer time offered poor investment climate 70% of the time.

Here is a chart that looks at monthly movements in the S&P since 1956. This also supports the thesis that summer trading  is unprofitable.

Conclusion: Sell in May. (But watch out for those exceptions). You have been warned.