Buy in November, Sell in May and Go Away ?

Publish date: Sat, 12 Apr 2014, 11:11 AM 

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 1. Bearish Whispers

Last two weeks, the market seemed to have entered a bearish phase.
Majority of the stocks in my watchlist are red most of the time. 

There is a mixed bag of news coming out from major economies. Weak economic data from China in particular gave rise to concern whether the second largest economy is heading for a hard landing. 

Even my remisier has started sending out emails to warn his clients of an impending correction.

"Be careful", he whispered nervously, "we can always buy back later when the price comes down."



2. Self Fulfilling Prophecy ?

Apart from newflows from major economies, another factor is that we are now in the month of April.

There is a common perception among equity investors that market will usually turn bullish by year end and soften after the first quarter. 

That is why there is a saying "Buy in November, Sell in May and Go Away"

What it means is that if an investor systematically adopt this approach by entering the market in November, cash out in May and go for a holiday over the next six months, he / she would have outperformed the market over the longer term.

In other words, during the period from May until October, nothing good will come out of it.

With the bulk of my net worth in the stock market, I am understandably nervous.

So I decide to do a study to verify the November / May theory.

And it turns out that there is nothing much to be studied. 

The results is pretty clearcut and straighfoward.  If you look at the KLCI chart below, there is no compelling evidence to suggest that the market will soften come second quarter of every year. 



3. Concluding Remarks

Based on historical data dated back 6 years, there is no evidence at all that the KLCI follows a pattern of bullish and bearish pattern for November and May respectively.

It is just one of the many myths in the market. 

Having said so, please don't take it that everything is fair and well. There could be a correction on the way if things turn sour in major economies, or the occurence of some black swan events.

But it definitely has got nothing to do with which month of the year you are in.

Cheers.