This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Buy in May and Go Away, Without Worrying

BOSTON ( TheStreet) -- "Sell in May and go away" is an old-school investment aphorism that just won't die.

It means the best strategy for avoiding the stock market's summer doldrums is to park your portfolio in Treasury bills or cash until October.

Leonard Rosenthal, a finance professor at Bentley University in Waltham, Mass., said there's a renowned academic study covering the 80 years through 2006 that backs up the idea of a seasonal market cycle. It concludes that two-thirds of gains in an average year come between November and April.

But given the paltry returns of interest-only investments today, not to mention the stock market's current volatility, what is in essence a recommendation for a market-timing play should probably have been retired along with white-shoe bankers. For one thing, it would have caused its followers to miss the huge rebound in the summer of 2009. Then there are tax issues to consider when selling securities.

And who needs to take such dire action when there are so many other sure-fire strategies to keep a portfolio on boil from a beach chair? A bulletproof portfolio for the next six months should include a mix of large-cap stocks with global exposure, and a couple conservative mutual funds that limit losses in a downturn but also have the potential to post gains.

But, first, on the sell side, it probably is a good time to sell in May if you have a stake in the small-cap sector, advises Bank of America's (BAC - Get Report) Merrill Lynch. Those shares climbed over 10% in the first four months of the year. The brokerage unit said in a May 3 research report that, historically, "small-caps tend to fall by 0.5% over the subsequent three months (after an early-year run-up) and by 1.2% when we reach August."

At this time last year, Merrill Lynch said, the Russell 2000 had risen 15% in the same period and subsequently dropped 16% through August. The Federal Reserve's bond-buying program, announced in November but widely expected for two months, boosted small-caps, the brokerage said.

So take those gains and build a portfolio made up of a mix of a few of the following four stocks and two mutual funds. They should keep your summer from being a bummer while you're "away":

1 of 7

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
ABT $48.90 -0.08%
AMAT $20.43 0.27%
BAC $16.99 1.90%
CAT $86.29 0.14%
HAL $45.87 -0.11%

Markets

DOW 18,100.52 +88.58 0.49%
S&P 500 2,114.11 +4.51 0.21%
NASDAQ 5,098.1820 +21.6580 0.43%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs