Icon8888 Gossips About Stocks
(Icon) Buy in November, Sell in May and Go Away ?
1. Bearish Whispers
Last two weeks, the market seemed to have entered a bearish phase.
Majority of the stocks in my watchlist are red most of the time.
There is a mixed bag of news coming out from major economies. Weak economic data from China in particular gave rise to concern whether the second largest economy is heading for a hard landing.
Even my remisier has started sending out emails to warn his clients of an impending correction.
"Be careful", he whispered nervously, "we can always buy back later when the price comes down."
2. Self Fulfilling Prophecy ?
Apart from newflows from major economies, another factor is that we are now in the month of April.
There is a common perception among equity investors that market will usually turn bullish by year end and soften after the first quarter.
That is why there is a saying "Buy in November, Sell in May and Go Away"
What it means is that if an investor systematically adopt this approach by entering the market in November, cash out in May and go for a holiday over the next six months, he / she would have outperformed the market over the longer term.
In other words, during the period from May until October, nothing good will come out of it.
With the bulk of my net worth in the stock market, I am understandably nervous.
So I decide to do a study to verify the November / May theory.
And it turns out that there is nothing much to be studied.
The results is pretty clearcut and straighfoward. If you look at the KLCI chart below, there is no compelling evidence to suggest that the market will soften come second quarter of every year.
3. Concluding Remarks
Based on historical data dated back 6 years, there is no evidence at all that the KLCI follows a pattern of bullish and bearish pattern for November and May respectively.
It is just one of the many myths in the market. (Malaysia boleh)
Having said so, please don't take it that everything is fair and well. There could be a correction on the way if things turn sour in major economies, or the occurence of some black swan events.
But it definitely has got nothing to do with which month of the year you are in.
Cheers.
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Discussions
4 people like this. Showing 32 of 32 comments
Yes I agree with Fortunebullz, the world cup is in June - and based on previous data the market is weak during the world cup. Hence MAY should be the month to exit the market and re-enter end of JUNE - OR the day before Brazil plays Spain in the FINAL.
2014-04-12 11:43
It reminds me of " Business cycle, economy expansion and recession are natural phenomena in market economy, as natural as low and high tides. Recession is a natural mechanism of clearing the economy of inefficient units and a mechanism of restoring economy equilibrium after the economic growth induced turbulence. ". I prefer to take a break for holiday. :)
2014-04-12 11:57
I dont think so, the Dow should rebound soon, maybe the real drop will take place end of MAY
2014-04-12 12:25
sell in may started early this year in apr
continue another week than zoom
up to end of may
jun will be a quite month with
low vol follow by half year widow dressing
no big corrections tis year but in 2015 mkt
will kaput big time
2014-04-12 12:41
maybe ur stock is speculative counter.. most of the stock i hold its quite stable.. look at gkent, tasco, kmloong, tdm, ntpm, upa, picorp... if u are holding value stock.. it will give u the value eventually... i agree on what u said,but dont totally hold ntg you will eventually lose out..
2014-04-12 13:28
I think the market is at the high side at the moment, and if it in fact came undone in May it will not be done in by this May/Nov thingy but the big boys as the current high valuations are making it very hard to squeeze out a further gain anymore.
2014-04-12 16:26
In 1992, Index then was around 600 and has doubled to 1200 by end 1993. Drop back to 1000 in 1994 and hovering in the region of 1000 to 1200 till 1997. It went down all the way to below 300 points in less than a year.
Market recover in year 2000 and index went all the way close to 1500 in year 2007 before retreating back to 900 level in year 2008-09 during the global financial crisis. A 600 points drop.
Again KLSE has doubled from 900 to over 1800 point in a span of less than 5 years. Malaysia market P/E is already in the region 17.38 as of 4/4/2014.
If i were you, i would take precautionary measures to take some monies off the table (esp the high beta stocks)and retain the fundamentally strong companies. We cannot predict for sure when is the next downturn but it is clear that the strong rally in the past has stretched valuation.
One thing is quite clear, the tightening of liquidity in the coming years will definitely has an impact on market performance. How much is anybody guess, i reckon the correction should be at least 300-400 points.
2014-04-12 21:37
Another good indicator is market capital to GDP ratio. In early 2012, the ratio is 156% and this showed that Malaysia stock market is trading at a 56% premium then. Since then, KLSE has went up another 300 plus point. In both end 1993 and 1996, this ratio has crossed 300%, and went down to 81% in 2008.
With domestic consumption on the downtrend due to higher inflation, BNM restriction on personal finance and mortgage financing. With export growth still in a anemic stage, the engine for growth is public and private investments. Malaysia government to take in more debts is limited, so only leave with private investment to sustain the momentum of GDP at 5%.
Don't forget Malaysia corporate debts already closed to 100% of GDP. If companies pushed their envelope further in the next few years. The cost of debts will definitely on the rise coupled with liquidity squeeze in the horizon.
Market Cap to GDP ratio currently could be closed to 200%, anymore rally will make the next correction steeper.
http://www.theglobaleconomy.com/Malaysia/Stock_market_capitalization/
2014-04-13 09:15
same here
i have been trying to sell in may and go away during the past 5 years.
and every year I was wrong
2014-04-13 10:18
I will never clear 100% of my equity position and hold cash. I will buy on weakness if the company fundamental is strong with good dividend payout ratio. Company with good free cash flow and low gearing, its share price is more stable.
Even in growth sector like oil & gas, construction, we need to benchmark and select the one with better upside potential with lower risk. In a downturn, company with credible reserve, strong recurring income with minimum bad debt provision history will survive.
If you are holding equity where P/E multiple is high purely based on news, then the wise things to do is to take profit and lock in your capital. Use OPM (Other People Monies)to take risk and wait for the fundamental to catch up.
At this juncture, the risk is much higher, we must keep sufficient bullets to reload the gun when situations like those in 1998 and 2008 present itself.
With so much liquidity in the system, market might stay buoyant and hover within a range for another few years. However, the upside is harder to come unless it is drive by real earning growth.
By then, if the economies of US, China, Japan and Europe still don't have a clear signal of steady growth, then we will really need to take more monies off the table.
2014-04-13 15:44
We need to be more alert from now on, the next anniversary could be just around the corner 2017-18. After the 2008 crisis, almost every government on earth is trying to de-leverage and balance their budgets. That's why there is a currency war out there.
US is fortunately enough to be self-sufficient in energy and an huge pool of innovative enterprises. The next break through in technology could revolutionize and bring the global economy to the next level.
Let keep our fingers crossed and hope for the best.
2014-04-13 16:10
i suggest maybe 'buy in May and go away'
make sure you hold quality stocks, but stop looking at the market.
Go for a holiday
come back in November and voila !!! up 30%
how nice.
2014-04-13 17:05
Yield curve is another indicator to reflect the health of a country economy.
a> A rising yield curve reflect an early stages of an economic expansion, generally it is bullish for stocks.
b> When the curve start to flatten, it's still relatively bullish for stocks due to economic growth momentum.
c> Finally when the curve inverts, its a sign you don't have much time left. You need to worry on recession, falling earning and risk of declining or even plunging.
If Market Cap to GDP is historically high, it indicates market value move too far ahead of fundamental.
When money if cheaper in future than you are paying right now. The yield curve has inverted. It's time to exit the market.
As an investor, you need to scan the environment and make the sensible decision to re-balance your portfolio.
http://invest-made-easy.blogspot.com/2013/07/using-yield-curve-to-predict-stock.html
http://asianbondsonline.adb.org/malaysia/data/marketwatch.php?code=government_bond_yields
2014-04-14 09:48
Hello Icon ;D I have been seeing you everywhere ;D I have just received an email: We are pleased to inform you that Maybank Investment Bank has scheduled to issue
3 European Style Non-Collateralised Cash Settled Call Warrants namely KAREX BERHAD, CAHYA MATA SARAWAK BERHAD, and MALAYSIA AIRPORTS HOLDINGS BERHAD to be listed on Tuesday, 15 April 2014.
I know you saw what the KAREX CA (CIMB) did today. What do you think about any or all of these?
2014-04-14 23:06
Will the introduction of the KAREX-CB push up the KAREX-CA? Or will both move together? That being IF mother moves up.
2014-04-15 00:55
MOTHER must move up strongly,,, i can only think one counter that can move strongly tomorrow,,oh my god CMSB !!!!!!!!!!
2014-04-15 01:22
G'Morning Johnny ;D. Are you bringing your gun's to town today? LoL ;D? So, CMSB-CG is where the action will be today? MACD has just crossed the signal, you should be right on ;D. I will bring my gun's as well ;D!!!!!
2014-04-15 07:31
Caveman call warrants should be treated as warrants and be evaluated based on exercise price expiry date conversion premium etc
Thank you
2014-04-15 07:43
G'Morning Icon ;D. I understand. This is why I am looking at all mother signals. Fundamental and technical. They all are quite sound stocks. All these expire on 4-28-2015. Thank you too ;D.
2014-04-15 07:56
Hello Everyone ;D. Take a glance at MALTON. Should be another starburst!
http://klse.rajakamil.biz/2013/06/malton-berhad-a-small-cap-developer-with-a-perfect-mix-osk/
2014-04-16 00:29
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Interesting !
2014-04-12 11:39