Fisher Investments Editorial Staff
Media Hype/Myths

Pop Quiz, Hotshot

By, 05/06/2009

Story Highlights:

  • This time of year tends to highlight a popular seasonal investing myth—"sell in May, and go away."
  • On average, the numbers don't support this myth, and in any case, staying in the market reaps better returns than trying to time the market—especially off the bottom of a bear.
  • There are still risks, but massive monetary and fiscal stimulus combined with a banking recovery should outweigh existing negatives to stimulate economic growth later this year.
  • If markets anticipate that growth, as they should (and always have), then there's plenty of reason to be in stocks now.

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Pop quiz: What historical Mexican event does "Cinco de Mayo" commemorate?

If you answered Mexican Independence Day (akin to our Fourth of July) you'd be wrong. But not to worry—you have plenty of company. Contrary to popular belief (at least here in America), Cinco de Mayo commemorates a Mexican victory over French invaders in the Battle of Puebla. But investors shouldn't talk. Investing is awash in myths.

Here's a popular investing myth that pops up around this time of year—"sell in May, and go away." Depending which period you select, the summer months may seem to underperform the fall and winter months. Or certain years appear to fit adherents' expectations perfectly. Maybe one year a correction begins in May and lasts the summer—aha, what they say is true! Right? Well, what about the years that doesn't happen? Sitting out the summer hasn't paid historically. On average, since 1926, stocks outperform popular alternatives (like cash, for instance) during the summer months.

Markets are too hard to predict in the ultra-short term. Preferring one immovable tactic over a more flexible holistic strategy can lead to ruin. Take recent times for instance. The winter months (supposedly the stronger portion of the market cycle) witnessed a financial panic and major losses. Beginning in March and continuing through April, markets posted one of their strongest, quickest gains in years. If it proves to be the beginning of the right half of a V-shaped bear market bottom and new bull, expect more of the same. Staying in the market reaps better returns than trying to time the market—especially coming off the bottom of a bear. This summer, stocks could be strong, even spectacular.

Of course, whether we're witnessing a new bull market is still a matter of opinion. Plenty of bears argue it's a "sucker's rally." Which in itself could be a good thing—bull markets are born in ashes and climb a wall of worry. Maybe the bears are right though. Today's market is volatile and real risks exist. But absent a monkey wrench out of left field (yes, very hard to catch), we think the massive monetary and fiscal stimulus combined with a banking recovery should outweigh existing negatives to stimulate economic growth later this year. If markets anticipate that growth, as they should (and always have), then there's plenty of reason to be in stocks now—just the opposite of what popular market mythology might suggest.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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