Sell in May and Go Away? Really!

The old adage of selling in May has started its mantra in the media. Unfortunately, it is an outdated theory which has not come to fruition over the past few years. Market timing does not work and various academic studies have concluded this finding. With global investing, diversification, and rebalancing on a discipline basis you will have less chance of underperforming and missing opportunities.

I have been examining various valuation measures that are used in measuring markets. There is the Fed Model, Tobin’s Q, Spiller’s CAPE, Hussmann’s P/E and VLAP. The problem with these is that they can tell you how far the market has moved but not really if it is overvalued and when you should invest.

There is a debate going on right now on how overvalued we are based on the above mention measurements. The problem is that the signals are mixed resulting in a useless indicator. Fed Model is very attractive for stocks; however the others result in different degrees of over valuation.

Since my job is to adjust not predict markets, speculation on which one is right is a losers game. The monetary is very strong right now with interest rates at historical lows. This should give us some comfort from the “sell in May and go away” theory. The psychologypart of the market is too complacent with the individual investor staying out; waiting for the next pullback to board the train.

Rebalancing and some spring cleaning of portfolios is what we are doing. This is not timing or getting out. Just proper portfolio risk management to ADJUST to the sector rotation that is going on by the institutional investor community. To simplify “buy low, sell high” it always worked for me.


About billriley

Chief Executive Officer, Chief Compliance Officer A co-founder and shareholder, William Riley is a 33 year industry veteran, who observed, many years ago, that over time institutional investors typically outperform individual investors while accepting less risk. In his role as Chief Executive Officer, Bill works tirelessly to make the wealth management strategies used by the world’s wealthiest families and largest institutions available to our firm’s individual clients. Bill combines fundamental and technical analysis to minimize investment portfolio risk and maximize potential returns. He uses a variety of non-correlated asset classes, including alternative investments, to minimize portfolio volatility and seek absolute returns in down or flat markets. Finally, Bill believes in a comprehensive approach to wealth management that fully coordinates and seamlessly integrates portfolio management, risk management and asset protection, trust, estate, tax and charitable planning. Prior to co-founding Riley Wealth Management ,LLC, Bill held management positions at Merrill Lynch, UBS, Raymond James, Paine Webber and J.C. Bradford. Bill founded Fort Worth branches for Raymond James and J.C. Bradford. Prior to entering the financial services industry, Bill ran his families closely held businesses. Bill’s experience operating family businesses combined with his wealth management experience makes him uniquely qualified to advise entrepreneurs and business owners on a variety of matters including complex and sensitive issues relating to business succession. Bill’s degrees and designations included a Masters Degree in Business Administration (MBA), the Chartered Financial Consultant designation (ChFC), the Chartered Life Underwriter designation (CLU) and the Wealth Management Specialist designation (WMS). A Fort Worth native, Bill is a TCU alum and active in many civic and charitable organizations. Bill and his wife, Marsha, now reside in Colleyville, and they have four grown children and four grandchildren. When he is not working on portfolios or studying financial markets, Bill can be found on the golf courses of Ridglea Country Club.
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