To sell or not to sell, that is the question.
Sell and go away and the speculation of a late May sell-off seem to be leading the fear monger or informational headlines this week. For those that don’t know, here’s the definition of ‘Sell In May And Go Away’ from Investopedia:
A well-known trading adage that warns investors to sell their stock holdings in May to avoid a seasonal decline in equity markets. The “sell in May and go away” strategy is that an investor who sells his or her stock holdings in May and gets back into the equity market in November – thereby avoiding the typically volatile May-October period – would be much better off than an investor who stays in equities throughout the year.
This sell-off usually occurs on the first trading day of May, so thinking about it now seems USELESS. However, there is speculation that we are overdue for a major sell-off and because it didn’t materialize on May 1, it is like a lurking shadow. The bulls however are of the opinion that when a market starts a year with this kind of strength the “Sell in May and go away” doesn’t materialize.
What to do?
Numerically it makes sense to protect your gains from a predictable decline in the markets. However, a bit more research has shown me that the numbers don’t pan out that way.
Obvious reasons this basic strategy doesn’t work are six months of lost gains, loss of dividends, change of tax status and brokerage fees, which as we all know eats your profit and destroys compounding interest.
So I decided to lock in my GE (General Electric Company) gains at 41.4% and buy on the dip (if it comes). If the dip doesn’t materialize, I will lose $16.00 in fees and buy it back. I was also toying with the idea of selling my BAC (Bank of America Corp) and locking those gains but I elected not to, yet. I definitely plan on buying back my GE shares before November. I don’t want to dodge the entire six month session as I want to cut losses and buy on the dip. I face the same dilemma every day as I watch my portfolio soar a few percent and then at the end of the day realized gains are .02% or negative. This is only my third year of trading so I can’t definitively predict what is going to happen but I am actively looking for a way to maximize intra-annual gains and the simplest way seems to be dodge predictable sell-offs and maximize intraday peaks. If anyone out there has any suggestions, I would greatly appreciate them.