Sell In May And Go Away - How true is the proverb?



As far as Dalal Street is concerned the adage "Sell in May and go away" seems to be holding true for the three years in succession. 

During the month of May 2012 the benchmark index, Sensex has fallen by over 1,100 points. This would be the third consecutive year of a large-scale plunge during the month of May for the Indian stock market, as also for many global markets, the historic data suggest.


During May 2007 dalal street saw a very moderate cut and was largely flat while Year 2008 and 2010 saw a cut of almost 4% in May. 2009 was an exception where we saw a significant rise in market in that month. In terms of absolute losses, during the May 2011, the stock market wealth had declined by about Rs 1.8 lakh crore (about USD 60 billion), while the loss was about Rs two lakh crore (USD 80 billion) in May 2010.The month of May witnessed positive moves in 2005, 2003 and 2001 also, while losses were noticed during May months of 2004, 2002 and 2000. However, the gains during May have mostly been lower than other months, even during those years when the month of May has seen positive movements.

The 'sell in May' theory was first propagated for the US market in the 'Stock Trader's Almanac', first published in 1966 as a compilation of historic patterns and calendar-based seasonal trends for the stock movements.

The strategy says that an investor can earn better returns by investing in stocks during the 'best six months' of a year (from November to April) and then selling the stocks in May and switch to bonds for the worst six months (from May till October).



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