Better Than “Sell in May and Go Away”

Now that it’s May, people are writing to ask whether I think it’s time to get out of the stock market. The old adage to “Sell in May and go away” has stuck far and wide, it seems.

According to The Stock Trader’s Almanac, the best six months to be in the stock market are November through April, and the worst six are May through October. However, the system utterly failed last year and in many other years. In fact, the Almanac itself is looking into a significant tweak in the system to account for the fact that the date ranges appear to be changing.

Also, the Almanac uses an MACD-based signal to tell subscribers when to get in and out of the market for triple the performance of the rote calendar system, and that signal has not been issued yet.

Better than all of this, however, are my much simpler permanent portfolios. They’ve run circles around the best six months in back-testing and in real-life since I began using and tracking them at the end of 2002. They’re better than the MACD signal, too, because that’s subject to the analyst’s interpretation and gives a fair number of false calls.

If you’re a trader, perhaps market timing is appealing and you enjoy technical signals such as MACD. For most investors, though, a long-term solid performance with as little fiddling as possible is better. For that, I highly recommend my permanent portfolios. You can see Double the Dow’s performance history here and Maximum Midcap’s performance history here.

The reason they work is that they couple extreme volatility — in each case twice the market’s — with assured recovery. With a typical index fund, you don’t get extreme volatility, so money you invest on a regular basis such as monthly doesn’t ever get super bargain sale prices. With a typical stock, you don’t get assured recovery because sometimes stocks go to zero and never come back. Just ask anybody who invested in the sub-prime lender market recently.

By the way, one group of stocks that comes close to providing assured recovery is the Dow. I also have that covered with Dow One, the historically strongest of the Dow Dividend Strategies, although you’ll see on the performance page that Double The Dow has been a better bet, and will never fail to recover.

Finally, better than just selling everything you own and suffering the taxes along with the uncertainty of not knowing when to buy back in, is setting stop-loss orders under some of your stocks that have performed well recently. That’s what I did over the weekend with two stocks owned in The Kelly Letter, and both hit for respective profits of +8% and +30%.

Stop-loss orders (better thought of as lock-gain orders on stocks that are up), are a great way to take precaution against a potentially falling market, without worrying about getting the timing right.

Besides, surely you’re aware by now that almost nobody can successfully time the market. Remember, getting out is only half the battle. When would you get back in? Probably after a surprise rally that nobody saw coming, and after missing the bulk of the gains to be had.

Why bother? Just keep buying into proven strategies through good and bad times, and you’ll come out ahead of almost all timing gimmicks — and with fewer gray hairs.

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