The Best 6-Month Strategy For Investing In Stocks – Is It The Real Deal?

Wall Street follows many different time periods in hopes of figuring out predictable trends. There are several of them that occur in December and January that are supposed to predict the returns for the coming years. One of the better known Wall Street trends starts on Thursday.

A trend was detected by the researchers at the Stock Market Almanac that the best time to be invested in the stock market is between November and April and the worst time to be invested is between May and October.

In fact, there is a saying that goes “Sell in May and go away.”

The writers at the Stock Market Almanac conducted an illustration to prove this theory to be correct.

The illustration compares an investor investing in Dow Jones stocks during the best six months of the year versus an investor investing in the same stocks during the worst six months of the year. The illustration showed both strategies starting in 1950 with $10,000 and repeating the strategy until 2004.

What is the difference between the two strategies?

Investor “A” who was invested during the worst 6 months for the 54-year illustration turns $10,000 into $9,498.

Investor “B” who was invested during the best 6 months for the 54-year illustration turns $10,000 into $489,933.

That is an amazing difference! Is that something that always holds true? Well it works until it doesn’t work anymore. It typically works best while it remains a secret. However, let’s take a look at this strategy when the markets are facing huge amounts of risk.

For example, look at the last bear market between 2000 and 2002.

November 2000 through April 2001 -12%
November 2001 through April 2002 -4.9%

Another rough time in the markets would be 1969. The best 6-month time frame netted a loss of -14%.

So what is the moral of the story?

1) If everyone is talking about an indicator that can predict future returns on your investments, the secret is out and chances are the less effective the indicator will be going forward.
2) There is a lot more to the numbers as illustrated above. Risk changes everything. To bet on that 6-month strategy holding true might prove to be a mistake. The risk level is higher than it has been in over 5 years. Determine how you are invested based on prudent principles of investing rather than pop culture trends.

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