The Great "Sell In May" Hoax -- Revealed By Ex-Hedge Fund Manager
“I gotta hop on a plane, Josh.”
(He couldn’t even remember my name.)
“I’m off for a round of golf with the new Falcon’s quarterback. Remember, just sell in May and go away!”
Just like that, I was being ushered out of Damian’s office… My coffee hadn’t even cooled yet.
The biggest producer in the Atlanta Bear Stearns office had just imparted his best wisdom to me. And his advice had the potential to ruin my career…
A Half Truth With Damaging Potential
“Sell in May and go away.”
I repeated the line to myself as I walked back down the hall to my office. It didn’t seem to make sense. And yet, Damian was one of the best brokers in the business. Was that simple phrase really responsible for his success?
I still wasn’t convinced that Damian was shooting straight with me. So I stopped by my boss’s office before heading back to my desk.
Since I started working at the hedge fund in 2000, Bill had been my mentor and sounding board. And with a track record that spanned more than 20 years of consecutive annual profits, Bill was an excellent investor to learn from.
“He has a point” Bill told me.
“Markets are generally stronger during the winter months, and usually flat during the summer months.”
Bill pulled out a couple of big black notebooks that he had used to hand-chart the markets and some key indicators. I had seen these charts before. They dated back to the 1950’s with intricate details of market trends and dynamics.
Bill showed me how market trends have historically been stronger from October through April. And he agreed with Damian that selling in May was best for most traditional investors.
“But we’re not traditional investors” Bill muttered under his breath.
“What’s that?” I asked?
I could sense Bill getting irritated.
“Well there’s one big problem with broad statements like that” Bill said. “They only work in a vacuum!
“If you can only make money buying stocks, this rule might make sense. But with the strategies I’ve been teaching you, you can make money in any market… up, down, flat, whatever.”
“That’s good to know,” I told Bill. I didn’t feel right about what Damian said. “I couldn’t put my finger on it, but something just didn’t sound right.”
The Problem With Blanket Financial Advice
Bill went on to explain why Damian felt so strongly about the “sell in May” rule…
You see, Damian wasn’t really in the business of managing people’s investments. As a Bear Stearns rep, Damian was in charge of bringing in big clients. Once the customers had their accounts with Bear Stearns, other managers in New York would allocate their funds. And Damian would get paid based on the commission these clients were charged.
The “sell in May” rule worked to Damian’s advantage in two ways.
First, it meant Damian had to answer fewer questions from his clients. And this was important because Damian focused only on professional athletes. By keeping his clients out of the market during the summer months, Damian was free to travel around and play golf with all of his prospects. He even kept a corporate jet on standby at our local commuter airport.
Second, by getting his customers in and out of the market twice a year, Damian could generate more commissions. And that meant bigger quarterly bonuses, faster cars, and more expensive watches.
While the “sell in May” rule was based on market data, it sure did help Damian’s business flourish.
Making Money in All Market Seasons
I bring up this story with Damian today because it’s that time of year again.
Every April — usually towards the end of the month — the financial press and business news channels bring up the same statistics.
They’ll tell you that it’s best to sell all of your positions for the summer. They’ll tell you that institutional managers are leaving the desk, and that there are fewer opportunities. And for traditional buy and hold investors, the suggestion to sell is probably good.
(Although buy and hold investors probably aren’t going to take the advice. That’s because they simply buy and hold…)
Today, I want to encourage you to take a different approach.
Instead of selling your investments, missing out on any advance in the market, and costing yourself extra fees and commissions — consider a different approach…
If you’re holding shares of stock in your account, consider selling call contracts.
By selling a call contract, you’re agreeing to sell your shares of stock, but only if shares are trading above an agreed upon price. You can choose an options contract with a price you’d be happy to sell your shares at. And I would use a call contract with a date just four to eight weeks from now.
When you sell a call contract like this, you’ll be paid instantly for entering your agreement. That cash is yours to keep no matter what. And if the time for the option runs out and you are not required to sell your shares at that price, you can sell more call contracts.
This is one of the strategies Bill used to turn a profit in up markets, flat markets and down markets.
Adding strategies like these to your investment account can make the difference between collecting reliable profits, or missing out on big opportunities in the market.
Here’s to growing and protecting your wealth!
Editor, The Daily Edge
P.S.: Last year, I showed my readers how to generate $17,563 in income between May and September, all from using an option selling strategy like the one I mentioned today. In 2015 we generated $15,625 during the same May through September period.
It’s so easy, even kids can do it! Don’t believe me? Click here to learn more about this easy instant income strategy.