Should Investors Sell in May and Go Away?

Henry Truc |

Wall Street Stock MarketWhether investors go by the saying, "Sell in May and Go Away," or pack up their portfolios to prepare for the Summer Doldrums, or maybe look to take profits as the Best Six Months end, this is the time of year where the stock market and Wall Street usually experience a noticeable drop in trading volume and performances in the major U.S. stock indices traditionally start their decline. So now that May has already started, should investors be looking to unload their positions and get out of the stock market? Maybe not...

Sell Stocks in May

The investment adage of "sell in May and go away" is based off the belief and historical data that the six months between November through April is the best time to invest in the stock market, meaning that May through October  is when investors usually start parking their money in cash, bonds or other non-stock investments. Other investors looking to stay in the market typically just move into defensive stocks such as consumer staples like--Wal-Mart (NYSE: WMT), P&G (NYSE: PG) and McDonald's (NYSE: MCD)--and health stocks like Biogen Idec (NASDAQ: BIIB), St. Jude Medical (NYSE: STJ) or Gilead Sciences (NASDAQ: GILD).

Since 1950, the six months between November to April has seen the Dow average a gain of 7.4 percent versus a gain of 0.4 percent for the six months between May and October. Thus far, the DJIA has gained roughly 15 percent through November 2010 to April 2011. Furthermore, over the last 10 years, seven have seen the May to October period show negative stock market returns. Investors staying the market have been advised to diversify their holdings--mainly in defensive sectors like the aforementioned health care and consumer staples, as well as information technology, utilities, energy and telecommunication stocks.

Regardless of what sector investors look into, however, it is important to select companies that are healthy enough to withstand market conditions. Look for healthy cash flow and if the company pays a nice dividend, even better. Another way to go is to look into investing in exchange -traded funds or index funds that spread out the risk. Investors can look into sector specific ETFs like Energy Select Sector SPDR (NYSE: XLE), Consumer Staples Select Sector SPDR (NYSE: XLP), or Health Care Select Sector SPDR (NYSE: XLV).

Investors Stay in May

Given that companies seem to be on an earnings hot streak as of late and the major U.S. stock indices are approaching new multi-year highs Wall Street hasn't seen since before the recession, investors may be a bit hesitant to cash out of the market. But experts believe the May sell-off this year could be minimal. One argument is that each third year of a president's term in office bucks that trend, according to Sam Stovall, chief investment strategist for Standard & Poor's.

Even if investors plan to move out of stocks, recent trends would indicate that cash or bonds are probably not where they plan to keep their money. The dollar continues to slide and Treasury yields have not exactly been a stable asset to hold. Investors in commodities like gold, silver and oil also don't seem to be letting up any time soon as well. Plus, as witnessed in 2009, getting out of the market means missing the boat on a huge rebound in investments. Investors are advised to diversify, especially during periods of uncertainty.

Do you plan to sell this May and go away? What is your investment strategy for the coming six months and how are you positioning your portofolio?

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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