Disciplined players follow the rules of the game.
That's so true about the experienced Wall Street traders.
Some of them follow this strategy: sell-in-May-and-go-away (and buy again in November)
They believe this strategy is highly profitable as it helps avoid the seasonal weakness in the U.S. economy. Apparently, there's some historical evidence to support this argument.
According to Investopedia, average returns generated by Down Jones Industrial Average for May-October period between 1950 and 2013 have been just 0.3%. In contrast, those for the November-April period have been 7.5%.
Does this hold true in the Indian context?
If you followed this strategy in Indian markets, you would have failed miserably. Between, 1979 and 2018 — i.e. over last 39 years, BSE Sensex generated an average return of 7.9% every year for May-October period, whereas, the average return for the November-April period has been 10.0%.
Moreover, there have been 14 years wherein BSE Sensex generated negative returns for the May-October period. As far as the performance of the index for November-April is concerned, there have been 12 instances of negative returns.
So, no clear evidence for the effectiveness of the sell-in-May-and-go-away strategy.
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Did you know?
Between May 1990 and October 1990 and May 1991 and October 1991, BSE Sensex jumped 61.7% and 44.6% respectively.
During May-October period in 2003, 2006 and 2007, BSE Sensex clocked the returns of 54.3%, 24.7% and 36.4% respectively.
Between November 1992 and April 1993, BSE Sensex lost 15.7%. Between November 1994 and April 1995, November 2000 and April 2001 and November 2002 and April 2003, the index dropped 24.0%, 12.0%, 8.3%.
Do you still need evidence for the ineffectiveness of sell-in-May-and-go-away (and buy again in November) strategy?
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Some commentators suggest that in the Indian context, one should change the set of stocks one buys during May-October and November-April period. They say monsoon-related stocks, pharma, and IT stocks will be bought during May-October; while the cyclical companies such as cement, auto, construction and other infrastructure-related companies will be favoured during November-April period.
You might also meet traders who advocate a stock-specific approach throughout the year.
All of them could be right or wrong.
But before you fall for any such strategy, you should answer a question: are you a trader or an investor?
If you're a trader, you might continue to try and test the strategies until you find one suitable for you.
But, if you are an investor, you should not bother about any trading strategy. After considering your risk appetite, you should devise a personalised asset allocation plan that aims to help you in achieve your financial objectives and goals.
If you want to invest for the long term, mutual funds may be a good option for you.
If you are a mutual fund investor, please remember the famous quote by Mark Twains—October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.
Over last 39 years, i.e. since its inception, the BSE Sensex has generated a little over 16% compounded annualised returns, which are phenomenally higher than those made by a trader following sell-in-May-and-go-away (and buy again in November) strategy.
Simply put, Rs 100 invested in BSE Sensex in 1979 has grown to more than Rs 34,000 in 2018. Actively managed mutual funds, if chosen correctly, can outperform the benchmark indices such as BSE Sensex.
Learn here how to select winning mutual funds:
[Download PersonalFN's guide:
10 Steps To Select Winning Mutual Funds ]
Therefore, more than finding the best trading strategy to invest in stock markets, you should spend more time on finding the right mutual funds for your portfolio.
Here's one of the best way to select winning mutual funds for your investment portfolio. Smart readers take a pause here and check out this offer
To invest in winning equity-oriented mutual funds, Systematic Investment Plan (SIP) is the best strategy, whereby you can accomplish your long-term financial goals.
Disciplined mutual fund investors should never disturb their SIPs based on the market swings. In fact, when markets are down, SIPs help you accumulate more units which proves to be rewarding when equity markets resumes the upswing.
A SIP of Rs 10,000 every month started in May 2011 would have fetched 11.3% compounded annualised returns in May 2018. The total worth of this SIP investment in May 2018 would be 12.67 lakh.
As against that if you bought units of the same mutual fund scheme worth Rs 8.5 lakh (which the total cost of your SIP) in May 2011, your investment would have been valued at Rs 15.90 lakh in May 2018. But still, that would have fetched you a lower return of 9.35%; that's because you locked your money in one go and it did nothing until August 2012. As against that, you accumulated more units during this phase which increased your percentage returns.
SIPs—Super Intelligent Path to handle volatility
| Month |
NAV |
Units accumulated |
| May-11 |
18.50 |
540.44 |
| Jun-11 |
18.85 |
530.62 |
| Jul-11 |
18.20 |
549.54 |
| Aug-11 |
16.68 |
599.64 |
| Sep-11 |
16.45 |
607.76 |
| Oct-11 |
17.71 |
564.81 |
| Nov-11 |
16.12 |
620.21 |
| Dec-11 |
15.45 |
647.04 |
| Jan-12 |
17.19 |
581.61 |
| Feb-12 |
17.75 |
563.30 |
| Mar-12 |
17.40 |
574.57 |
| Apr-12 |
17.32 |
577.41 |
| May-12 |
16.22 |
616.58 |
| Jun-12 |
17.43 |
573.72 |
| Jul-12 |
17.24 |
580.17 |
| Aug-12 |
17.43 |
573.74 |
| Sep-12 |
18.76 |
532.97 |
| Oct-12 |
18.51 |
540.38 |
| Nov-12 |
19.34 |
517.07 |
| Dec-12 |
19.43 |
514.76 |
| Jan-13 |
19.89 |
502.64 |
| Feb-13 |
18.86 |
530.18 |
| Mar-13 |
18.84 |
530.90 |
| Apr-13 |
19.50 |
512.71 |
| May-13 |
19.76 |
506.07 |
| Jun-13 |
19.40 |
515.58 |
| Jul-13 |
19.35 |
516.91 |
| Aug-13 |
18.62 |
537.07 |
| Sep-13 |
19.38 |
516.00 |
| Oct-13 |
21.16 |
472.49 |
| Nov-13 |
20.79 |
480.96 |
| Dec-13 |
21.17 |
472.35 |
| Jan-14 |
20.51 |
487.48 |
| Feb-14 |
21.12 |
473.48 |
| Mar-14 |
22.39 |
446.70 |
| Apr-14 |
22.42 |
446.07 |
| May-14 |
24.22 |
412.93 |
| Jun-14 |
25.41 |
393.49 |
| Jul-14 |
25.89 |
386.18 |
| Aug-14 |
26.64 |
375.40 |
| Sep-14 |
26.63 |
375.51 |
| Oct-14 |
27.87 |
358.86 |
| Nov-14 |
28.69 |
348.51 |
| Dec-14 |
27.50 |
363.64 |
| Jan-15 |
29.18 |
342.67 |
| Feb-15 |
29.36 |
340.58 |
| Mar-15 |
27.96 |
357.69 |
| Apr-15 |
27.01 |
370.22 |
| May-15 |
27.83 |
359.34 |
| Jun-15 |
27.78 |
359.96 |
| Jul-15 |
28.11 |
355.69 |
| Aug-15 |
26.28 |
380.47 |
| Sep-15 |
26.15 |
382.34 |
| Oct-15 |
26.66 |
375.14 |
| Nov-15 |
26.15 |
382.47 |
| Dec-15 |
26.12 |
382.88 |
| Jan-16 |
24.87 |
402.08 |
| Feb-16 |
23.00 |
434.74 |
| Mar-16 |
25.34 |
394.60 |
| Apr-16 |
25.61 |
390.52 |
| May-16 |
26.67 |
374.98 |
| Jun-16 |
27.00 |
370.37 |
| Jul-16 |
28.05 |
356.48 |
| Aug-16 |
28.45 |
351.47 |
| Sep-16 |
27.87 |
358.86 |
| Oct-16 |
27.93 |
358.04 |
| Nov-16 |
26.65 |
375.19 |
| Dec-16 |
26.63 |
375.57 |
| Jan-17 |
27.66 |
361.59 |
| Feb-17 |
28.74 |
347.91 |
| Mar-17 |
29.62 |
337.60 |
| Apr-17 |
29.92 |
334.24 |
| May-17 |
31.15 |
321.07 |
| Jun-17 |
30.92 |
323.40 |
| Jul-17 |
32.51 |
307.55 |
| Aug-17 |
31.73 |
315.15 |
| Sep-17 |
31.28 |
319.66 |
| Oct-17 |
33.21 |
301.09 |
| Nov-17 |
33.15 |
301.67 |
| Dec-17 |
34.06 |
293.63 |
| Jan-18 |
35.97 |
278.05 |
| Feb-18 |
34.18 |
292.53 |
| Mar-18 |
32.97 |
303.32 |
| Apr-18 |
35.16 |
284.41 |
| May-18 |
34.62 |
288.88 |
| Total units |
36,612.55 |
(For illustration purpose only)
Get out of the trader’s psyche Stop timing the market; instead focus on ‘time in the market’ with regular SIPs instead.
Start a SIP this May and let the fear of losing the opportunity go!
Read here: All You Need To Know About SIPs
Happy Investing!
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