Sunday, April 28, 2013

Stock Market: Don`t Sell In May, 2013 Edition

It seems there is a cycle of stupidity. Every year around this time you can read the headline "Sell in May and go away" in the media (marketwatch). Last year I dismissed this nonsense riddle with a short post (drivebycuriosity).

Since then, the S&P 500 (as a gauge for the U.S. stock market) gained 15% and has been climbing to an all-time high. This alone should stop the drivel about selling automatically in a certain calendar month.

But there are more arguments:

The stock market doesn´t follow simple rules, if any. In the long run it trails the economic trend, in the short run stock prices respond to a flood of economic news which is often random (noise). Hence selling stocks in a certain calendar month with the purpose of buying them back later doesn`t make sense.

In the long run, stock prices go up. Since its start in the year 1896 the Dow Jones, another gauge for the U.S. stock market, rose 7% per year on average. Hence, in an average year you would loose money if you follow the "sell in May" rule.

Furthermore, I claim that the stock market is still undervalued. The majority of market participants - including the funds - are still pessimistic and underinvested.

I also reckon that we are still at the beginning of a long term bull market that could be comparable to the stock market rally from 1982 till 2000.  We are experiencing a new industrial revolution: Advances in Internet, mobile computing, 3-d-printing, robotics, nano- & biotechnology and other fields are reducing costs, raising efficiency and creating new markets.

The catch-up process in China, India and a lot of other countries translates into high growth in large parts of the global economy that creates continuously rising revenues & profits for global companies like Starbucks, IBM, Caterpillar and other members of the S&P 500.

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