Mark Twain believed there were three kinds of lies: Lies, damned lies and statistics.
The author would have had a field day with the way statistics are used to “prove” dubious investment theories. A perfect case in point is “Sell in May and go away.”
The idea behind this persistent old idea is that stocks have traditionally had higher returns from November through April, and weaker returns from May through October. At first glance this makes sense: Since 1926, stocks have returned an average of 1.16% each month from November through April, and just .72% the rest of the year. The course of action is obvious: Earn your higher returns during the traditionally “strong” half of the year, and then get out so that the “weak” half of the year doesn’t dilute those returns.
But sometimes a great idea just doesn’t survive the trip from the paper it’s written on into the real world. “Sell in May and go away” is a case in point. The first problem that this legendary piece of advice runs into is a practical one: Once you’ve pulled your money out of the market in May, where do you put it?