Welcome to May, when stockbrokers sell and go away. This old saying is not as relevant today as a few decades ago when floor traders on Wall Street would vacation for the month in the Hamptons. I imagine eleven straight months of screaming and shouting (bids and asks) at each other would take its toll.
Historically, May is not a big month on the markets. Courtesy of Moneychimp.com, here are the S&P 500 monthly averages from 1960 to 2022:
January +0.85% May* +0.15% September -0.90%
February* -0.04% June +0.19% October +0.91%
March +0.89% July +0.75% November* +1.44%
April +1.37% August* +0.06% December +1.17%
Only February and September have negative averages. The worst four months in order are; September, February, August, and May. We rebalance quarterly (see the asterisks) and hit three of those four bad months—which is as good of a time as any—since we want to buy low. And we want to be driven by the process and not by emotion.
Investing is already driven too much by human behavior and emotion. So, whenever we can, we want a system or process that forces us to act regardless of our quirky human behavior. Looking at the May calendar page, I know I will make a bunch of buys this month to level out any imbalances in the portfolios. If we had to make that decision every month—based on some gut feeling or erratic market movement, or crazy news story, we would miss more opportunities than we would gain. Famed investor Peter Lynch, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in the corrections themselves.”[i]
I have systems in place in many different areas. From my clothing closet (always left to right), running every day, setting the coffee pot before bed, Jeopardy at 7 pm, to how I put away the dishes. Everything is much easier when you have a system. OK, almost everything.
Of course, I believe successful investing is enhanced by sticking to a system. I love automatic monthly contributions (or withdrawals). Removing emotions helps bridge the gap between market returns and investor returns. Unfortunately, investing is still a weird area where humans will buy when prices are high and sell when prices are low. If prices go up on Monday, we want more on Tuesday; if prices go down on Thursday, we want to sell on Friday.
In the long run, it hardly matters when you buy—if you hold a good position, it’s just historical trivia. Good companies will return their profits to the stockholders—and in the long run, good companies generate just enough gain to satisfy both their owners and consumers.
To close, in May, instead of selling and going away, I’ll be deploying any significant cash built up in the portfolios to buy what the portfolio most lacks. We add to the asset class that is down and leave the ones doing well alone. Shorthand for that is, buy the dogs and let the horses run.
Thanks for reading, Marty
Oh, one last thing, now that our busy spring (tax season) is over, we’ll have some spare time; if you want to get together and go over your plans, let me know—I’m always looking for a reason to get out of the office.
[i] https://www.cbsnews.com/news/the-smartest-things-ever-said-about-market-timing/
