If you're an investor with some experience in the financial markets, you've undoubtedly heard a phrase like this more than once: " Sell in May and go away ." This literally translates to "sell in May and leave," reflecting a market sentiment that often rings true. Furthermore, it's the perfect excuse to stay out of the stock market during the summer and return sometime in the fall. However, it's worth analyzing whether or not applying this strategy to such a specific investment is advisable.
In any case, there's a question you should ask yourself now: What do you gain by applying this unique strategy? Essentially, a very important one: you'll avoid being invested during a period when stocks have historically had lower returns . This hasn't always been the case, but if you look at the statistics from the last few decades, you'll see that you're making the right decision.
On the other hand, there is another opinion circulating in financial markets that seasonality is not a factor driving the stock market. Instead, it is believed to depend on a range of other financial parameters, including the trend of a stock, index, or sector. As with everything related to equities, this ultimately depends on the preferences of investors.
For what reasons do you have to sell?
However, there's a little trick in the wording of this article, which is so relevant to all kinds of investors, and that's the way the topic is framed. Because it essentially boils down to the saying, "Sell in May and leave, and don't come back until mid-September to resume investing." This is a popular saying that certainly isn't new; it's been around in the financial markets for many years . Perhaps since your grandparents' time, or even later.
It's crucial to remember that this particular strategy stems from the fact that returns during this period have historically been lower than in other periods. This is more than enough reason to stay away from the stock market from this point forward. So, you'll have no choice but to think about it more carefully than usual because, ultimately, it's your money at stake. And sentimentality shouldn't be a factor here, since your primary goal, above all else, is to make your savings grow. Nothing more, nothing less.
Bearish period par excellence
You should not underestimate the fact that this period, which has just begun, is one of the most bearish of the year. And this is true with the exception of rare upturns resulting from the inherent synergies of the financial markets. Given this scenario, the most prudent course of action for your next decision is to refrain from any financial transactions in the stock market, even if the gamble pays off—that is, if equities actually rise during these months. Because the bottom line is that you have more to lose than to gain, and it's only for a couple of months that will pass very quickly.
On the other hand, these months starting in May are very risky because they are highly susceptible to unforeseen news or events. This has been the case in recent years, as you will know from reliable sources. So, it wouldn't hurt to take some time to reflect before going on vacation. Or at least with a much lighter investment portfolio than you've had up to now.
This is a time of year when buying trends in equities slow considerably, sometimes to significant levels, allowing selling pressure to become much more pronounced. After the holiday period, selling pressure returns even stronger, taking advantage of more competitive prices . In other words, it's possible to buy shares with less financial effort, which is ultimately what stock market investing is all about. However, this particular scenario doesn't play out every year.
What can you do now?
This is the million dollar question that many small and medium investors come to. Well, it is not an easy solution to elucidate, far from it. But you have in your hand some options that you can turn to in these precise moments. Do you want to know some of these strategies to make the savings profitable during these summer months? Well, pay a little attention now because you may get out of more than one predicament in the current circumstances.
Commodities : without a doubt, this is the investment with the greatest growth potential right now. Take oil, for example. It's currently experiencing a bullish rally that could even push prices close to the important $100 per barrel mark, up from €80. In practical terms, this means it still has 20% upside potential. And it could be the solution to your investment problems during this challenging summer ahead.
Seize the strength of the bund
If there's one powerful economy within the European Union, it's undoubtedly Germany's. And in this sense, your strategy could be based on opening positions in German Bunds. While the returns won't be spectacular, they will meet your investment expectations for the coming months. This contrasts with peripheral debt , represented by countries like Spain, Portugal, Italy, and even Greece itself. It's no coincidence that a significant portion of global monetary flows are channeled into this important international financial asset.
Not only can you open positions in German Bunds directly, but the simplest way is through investment funds that offer this option to grow your savings. If you wish, you can combine it with other financial assets, both equities and fixed income. This will put you in the best position to diversify your investments from now on, and will also eliminate unnecessary risks that could cause problems with your existing positions.
Wait for better prices to arrive
On the other hand, you can also consider the opportunity cost: if the stocks appreciated during the period the investor was out of the market, someone who implemented this particular strategy would have missed out on those gains . During the current global bull market, its application has worked remarkably well most of the time. Why not try it yourself this time? There's certainly a lot to gain from the approaches we've outlined in this article.
However, entering and exiting markets due to calendar changes involves many costs. These include monetary costs, from commissions associated with buying and selling shares to their tax implications. Therefore, everything will depend on each investor's individual circumstances, as is the case for you. This is a factor that investors who focus their operations on the medium and, especially, the long term will not encounter, as they enjoy significant savings on commissions and all management and maintenance expenses.
What to do in these situations?
In any case, if you're a long-term investor looking to grow your capital, you should know that missing out on these gains during the summer months could negatively impact your portfolio. For this reason, it's a very difficult decision to make, even though maintaining cash might seem more important than other technical and perhaps even fundamental considerations. This is because, above all, you should prioritize the security of your investment decisions from this point forward, above any potential returns on these types of equity market transactions.
In this regard, the best decision should be based on an analysis of your most relevant needs. And depending on this, you should check the current trend of the stock market indices . It won't be the same to face a clearly bullish index as one with bearish connotations. To the point that your investment strategies will need to be clearly different, at least with respect to the shorter holding periods.