Switches and disappeared in May? In an old investment strategy a new twist

Over the years, investors confused a dramatic stock market anomalies. Stocks tend to their health benefits in the six months from November to April. In other months, the stock often do not do so well. Therefore, the adage “Sell in May and go.”

Since 1926, Standard & Poor’s 500-stock index has returned an average of 13.4%, including dividends, from November to April. From May to October, the S & P 500 Index has returned just over half as much, an average of 6.8%. (All proceeds from this article to April 30, 2017, unless otherwise noted.)

The strategy, before I have written since 1935 has been at least that investors, and has been proven to work in 108 markets in 81 around the world.

A large rebate in May Sell: six months in the seasonal weakness that you and your money? After all, stocks, on average, are still on the rise in the month, but not so significant.

Now, there is another, more pragmatic strategy. It involves investment in the S & P 500 index in the seasonally weak months, and the other half has a small-cap stocks this year. It turns out that the seasonal trend in the stock market is much stronger than the small company’s stock shares in big companies go beyond the winter and early spring.

Since 1926, the Leuthold Group in Minneapolis investment research firm tracking small-cap stock index, has returned in April by an average of 21.2% from November. This is a huge gain. More importantly, the average small-cap stocks to a paltry 2.1% other half of the year. (All numbers herein are small cap returns Leuthold courtesy from Ibbotson, Morningstar unit, by 1979; Russell 2000 hereinafter)

By a small cap index investment from November to April, then switch to the S & P, investors since 1926, won 13.8 percent average annual comparison, the annual rate of investment return of 11.3% in the year small-cap index; the S & P annual return of 10.1%.

Such switching strategies will be better than the last 91 years P 56. The average outperformed the winning project in years to 12.3 percent, while the average years of poor performance lost 7.0 percentagePoints. Last year, the strategy is as high as 15.4%, while for S 12.0% & P

But there is one problem: I know, almost no one would really implement the policies of the traditional sales in May. The same applies to the switch in strategy outlined in May last few paragraphs. why? Let’s face it: this anomaly does not make sense. This is a crazy old (now failed) Super Bowl exception call a good year for the stock if the win from the old National Football League team. More importantly, there are transaction costs and tax considerations.

“Fascinating,” Doug Ramsey, Leuthold’s chief investment officer, said switching strategy. “But not manage money we currently use.”

However, you can tilt by abnormal weakness in months towards large caps in your portfolio seasonal, more likely to profit from the smaller CA seasonally strong month PS. Among these, the capital gains tax is not a problem, easier to do in a retirement account. Or, you can adjust your contribution to the reduction of large-cap stocks in favor of small-cap stocks strong month, or your withdrawals over the same period. This is nothing investors can do.

But perhaps not long, Ramsay said: “Through behavioral finance people understand why it works, it may disappear when”