Sell In May?

I received the following question; What’s your current thinking this year to the old adage: “Sell in May and go away”? (for the summer that is, for the folks not familiar with the saying) I’m in a rather large 40% cash position at the present time. I don’t really act on these sorts of things in a meaningful way for a couple of reasons; first is that there may not a enough of a fundamental case to do it. The second reason is that I think I heard recently that it only works 54% of the time. I may have that wrong. I can also recall, however, another study that showed the market does much better from November until May by a dramatic amount. The nature of this second study I am vaguely remembering focuses more on better returns during the winter as opposed to declines in the summer. Anyone with specifics on either is encouraged to leave the links. Obviously in 2006 sell in May was 180 degrees wrong. In looking at the Stock Trader’s Almanac for the last ten years from May to October inclusive sell in May was also wrong in 2005, 2003, 1999 and 1997. Selling in May looks like it was right in 2002, 2001, 2000 and 1998 and I am going to say it was a push in 2004. I did not look further back due to time constraints and I would not really be able to defend an argument that says the time sampled is flawed, maybe because it includes the bubble and the aftermath. Hopefully you have a Stock Trader’s Almanac...

Sunday Morning Coffee

In an article in Barron’s there was a reference to the CBOE Exchange Index (EXQ). The index is comprised of the public exchanges traded on US markets. The press release I found on the CBOE website said there are six index constituents. I got to wondering why there is no ETF for this index. There are plenty of very small sub-sectors (oil sands is another one that comes to mind) that investors might want to isolate with just pure play products. Obviously an investible product with five to ten holdings assumes much more risk than any other sector product I can think of off the top of my head. My take on this is that plenty of people might want access to oil sands but not be comfortable selecting an individual stock. Invariably, if it existed, there would be people who misuse this type of fund but a do-it-yourselfer with a 12% weight to the energy sector overall (a modest overweight) with a quarter of his energy exposure in an oil sands ETF is not being reckless. He is probably adding volatility but he is not being reckless. I think a similar example also fits with an exchange ETF, if it existed. An investor with an equalweight 20% exposure to financials with a 4% allocation to the exchanges, I would say, is simply adding volatility without being crazy. There are a couple of capital markets ETFs out there but they are heavy enough in the big cap investment banks that it really isn’t much of an investment in the exchange stocks. If ETFs like this ever did come, Morningstar...

Sunday Morning Coffee

In an article in Barron’s there was a reference to the CBOE Exchange Index (EXQ). The index is comprised of the public exchanges traded on US markets. The press release I found on the CBOE website said there are six index constituents. I got to wondering why there is no ETF for this index. There are plenty of very small sub-sectors (oil sands is another one that comes to mind) that investors might want to isolate with just pure play products. Obviously an investible product with five to ten holdings assumes much more risk than any other sector product I can think of off the top of my head. My take on this is that plenty of people might want access to oil sands but not be comfortable selecting an individual stock. Invariably, if it existed, there would be people who misuse this type of fund but a do-it-yourselfer with a 12% weight to the energy sector overall (a modest overweight) with a quarter of his energy exposure in an oil sands ETF is not being reckless. He is probably adding volatility but he is not being reckless. I think a similar example also fits with an exchange ETF, if it existed. An investor with an equalweight 20% exposure to financials with a 4% allocation to the exchanges, I would say, is simply adding volatility without being crazy. There are a couple of capital markets ETFs out there but they are heavy enough in the big cap investment banks that it really isn’t much of an investment in the exchange stocks. If ETFs like this ever did come, Morningstar...