Stocks have surged through April in their best start to a year in 32 years.
But, markets don’t have a good track record of following up on a rally of that size.
“There are four other years since World War II that the S&P was up at least 15% to kick off the year like we’re going to be this year. Three of those years are virtually flat during these worst six months of the year, the other was 1987 when we lost about 13%, ” said Ryan Detrick, senior market strategist at LPL Financial, on CNBC’s “Trading Nation ” on Tuesday.

Since the Second World War the stock market has had four similar rallies starting the year. The 1987 19% rally in the first four months was followed by a 13% loss culminating in Black Monday. In 1967, 1975, and 1983 the market started the year very strong but then went flat for the summer months and into the fall.

Here at Profitable Investing Tips we routinely suggest that investors pick strong stocks using fundamental analysis techniques such as finding intrinsic stock value for buying and selling stocks. But, if what you need to choose and hold onto an investment is based on such solid analysis, how is it that the old adage, “sell in May and go away” has any value?

Why Sell in May and Go Away?

Investopedia looks at the adage sell in May and go away.

If a trader or investor follows the sell-in-May-and-go-away strategy, he would divest his equity holdings in May (or at least, the late spring) and invest again in November (or the mid-autumn).
Some investors find this strategy more rewarding than staying in the equity markets throughout the year. They subscribe to the belief that, as warm weather sets in, low volumes and the lack of market participants (presumably on vacations) can make for a somewhat riskier, or at a minimum lackluster, market period.

They cite the fact that between 1950 and 2013 the market has had an average gain of 0.3% during the May to October time frame and 7.5% during the November to April time frame. No one is absolutely sure why this happens but it seems to be tied to trading volume and presence of more investors.

Sell in May and Long Term Stock Investing

Some of the most successful investors are those whose preferred time period to hold a stock is forever. How does the “sell in May and go away” rule apply to them? It should be noted that while the stock market on the average does not do as well in the summer months as during the winter, over the years the market is still up on the average, by a little, in the summer. If you are thinking of selling your well-chosen stocks in May, consider the costs of fees and commissions as well as the work involved in repeated analysis of investments that have otherwise served you well. One of the basic reasons that long term buy and hold investors are successful is that they avoid the excessive overhead of investing found in paying repeated fees and commissions. Rather they use dividend reinvestment plans to keep purchasing stock without paying commissions and they typically use a dollar cost averaging approach that evens out the peaks and valleys.

Stock Market Timing and the Sell in May and Go Away Adage

The place where “sell in May and go away” would seem to work is in market timing. Trying to find bargains in May is a difficult task when so many investors and traders take the summer off. Rather, a better choice may be to use the summer months to evaluate investment opportunities and start buying, as a rule, in October. Of course, you will want to avoid the next Black Monday!

Buying Stocks That Let You Sleep at Night

A solid approach to investing is to buy stocks that have a long history of paying dividends, steady growth, and minimal volatility. These are investments that let you sleep at night. To the extent that these stocks experience their growth during the winter months may be a good reason to time your buying to take advantage of the winter months. It is not a good reason to sell the stocks that will provide you with a secure retirement.

How to Choose an Investment Advisor: What Do You Really Need?

Families with huge fortunes are concerned about preserving their wealth from one generation to another. There are various financial strategies to help avoid losing money to estate taxes with each generation. But regarding year by year investments, the point is to first stay ahead of the corrosive effects of inflation and then generate a predictable yearly return.

Above all the goal is to avoid losing everything that great grandpa built and passed on! And a big part of any long term strategy is to avoid having the cost of managing your funds eat away at your return on investment!

How to choose an investment advisor starts with deciding, in general terms, what you need. Are you are happy with an absolutely guaranteed return year after year? If that is the case you may simply want to buy US Treasuries and then ladders of CD’s at several banks. If that sort of absolute security is your goal you do not need to pay someone a fee to manage your money!

How to Choose an Investment Advisor: Brokers, Mutual Funds and Fiduciary Responsibility

In medium.com Richard Reis offers advice about this issue and says to be skeptical of financial advisors.

There are over 200 (!!) designations for financial advisors (e.g.: “wealth managers”, “investment consultants”, “financial consultants”, etc.)

According to Tricia O. Rothschild (Morningstar’s CPO), there are something like 310,000 financial advisors in the U.S. now!

He makes the point that if you are going to hand over control of your investments to someone you need to trust them. He uses the Bernie Madoff pyramid scam as an example.

But, avoiding a crook is not the only issue. Fees and commissions can kill you. Mr. Reis notes that Mutual Funds commonly do not beat the market even before they charge you money to manage your funds. The big issue with investment advisors is that all too often they are stock brokers in disguise. They take your funds and charge a small fee. Then they churn your account. This means they repeatedly trade stocks. And every transaction makes money for them and reduces your account.

How to Choose an Investment Advisor: Put Your Money in an ETF and Don’t Pay for Advice

The sad fact is that many money managers fail to beat the S&P 500 year after year. How to choose an investment advisor for many is get some onetime advice and then invest on your own. A viable approach to investing large sums money and not having the fees kill you is to invest in exchange traded funds.

Excellent reasons to use exchange traded funds include low expense ratios, tax efficiency, automatic diversification, and ease of entry and exit equal to stock investing. Investors may choose investing with exchange traded funds and avoid mutual funds. ETFs often outperform mutual funds and they are cheaper to enter and leave. Additionally, investors can pick ETFs that track various sectors instead of the broader market or international indexes specific to countries or regions.

Interestingly, Warren Buffett often suggests exchange traded funds as an investment choice for long term investors.

If you do choose an investment advisor ask for references, demand to see long term positive results, and demand to see each and every fee and commission.

How to Choose an Investment Advisor PPT

Effects on the EU and Its Economy

The immediate consequences of Greek debt default depend on who does not get paid. The Financial Times speculates on the consequences of a Greek default.

The short-term consequences of a default may depend on who exactly the Greek government fails to pay, as well as on the reaction by creditors – in particular depositors and the ECB. A default by Athens on domestic payment obligations, in the form of IOUs to pensioners and civil servants, would probably be the least risky. While such a move would almost certainly be challenged in court – as well as creating substantial political problems for the government – any ruling would be delayed.

A default on IMF loans would look politically ugly, as Greece would indirectly be refusing to repay some of the poorest countries in the world who contribute to the institution’s coffers. However, it is generally seen as less risky than a default to the ECB. The fund’s executive board would only be notified a month after Greece had not met its obligations and it would take several months before any concrete steps, which could go as far as excluding Greece from the IMF, were taken.

A default to the ECB is generally seen as the most treacherous option. The Greek banking system relies on emergency funding from the central bank and any decision to close the liquidity taps would result in lenders being unable to meet their obligations.

In short, if Greece cannot pay its obligations, it may get to choose the least difficult option first. If Greece is simply unable to continue it will need to print its own currency and it alone.

Who Wins and Who Loses

First on the list of consequences of Greek debt default are the creditors. Greece owes roughly €360 billion to various banks, governments, the International Monetary Fund and the European Central Bank. Governments can print money. Banks will be losers. Market Watch agrees regarding the losers if Greece quits the Euro.

Whatever happens, the creditors (led by Germany) will pay.

If you are invested in bank stocks in Europe you may want to think about this.Then the issue is the departure of Greece from the European Union as well as monetary union.

Is Leaving the EU a Bad Thing?

Forbes speculates that the consequences of Greek debt default, leaving the Euro and leaving the Euro Zone would not be all bad in the long run.

[N]ew research shows that there’s not really been any benefits from having the euro in the first place. So, leaving it isn’t like to to produce any ill effects once the transition itself is over with.

[T]here’s a positive effect of a currency union, increased trade, and a negative effect coming from the entire area having to have the same monetary policy.

The negative effects at this time are such that the long term consequences for Greece of debt default may not be as bad as expected.

Consequences of Greek Debt Default PPT

Growth Leads to Profitable Investments

Some time back our offshore investment advice was that one consider investing in middle class growth in Latin America. Strong economies commonly develop strong middle classes and the purchasing power of the middle class further drives the economy. Latin America has been growing and so has its middle class. The middle class has grown by a forth in the last ten years. Per capita income south in Latin America has gone up from $7,000 a year range to just under $12,000 a year. Things have slowed since the 2008 market crash and recession but the middle class has not lost ground. Investing in growing foreign economies is not limited to Latin America. Economic growth is slowing in China and around Asia but there are still lots of opportunities.

Taking Cues from the American Experience

Great stocks to invest in during the early twentieth century in the USA included the likes of General Electric, AT&T, Coca Cola, and virtually any public utility. As infrastructure was developed, those doing the work were rewarded. As people earned money they spent it and companies like Coca Cola learned to cater to the American taste for soft beverages. Our basic offshore investment advice is to take a look at developing economies in Asia and Latin America and find out who is likely to profit as infrastructure is improved and made more widely available.

They Do Not Make Any More Land

One of the basic tenets of investing in property is that there is a limited supply. Good farmland in northern Iowa used to sell for one hundred dollars an acre, and then a thousand, and now commonly $10,000 an acre. Land in downtown Tokyo is exorbitantly expensive but was not always so. Land used to be cheap in the banking district of Panama City, Panama and now goes for thousands of dollars a square meter. Good offshore investment advice is to look where the action is and is likely to be and buy property before the prices go into the stratosphere. But, what do you do when the price goes up? Do you sell?

Offshore Investment Advice about Taxes

US tax on foreign source investment income can be significant but as a rule income must be realized in order to be taxed. If you are lucky enough to buy downtown property in a place like Panama City, Panama, Rio de Janeiro, Brazil or even Manizales, Colombia before prices go up you do not need to cash in and take your profits. A reasonable way to benefit from your good fortune is to set up a long term lease with a local business, collect and pay taxes on the rent checks, and let the property increase in value over the years.

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Stock Market Investing 101: Before You Invest

First of all you will want to invest in the stock market and not gamble your money there. Start by realizing that a good stock investment may pay much better than a bank deposit over the years but will typically not keep up with the rate of interest that you are paying on credit cards. So, before investing in stocks pay off your credit card debt, look into buying a house or condo as mortgage interest is still tax deductible, and put aside enough in the bank for six months of expenses. That having been said there is nothing wrong with picking a couple of low priced stocks and investing a couple of hundred dollars in order to become accustomed to picking stocks, learning about what constitutes a margin of safety, how to do fundamental analysis and what intrinsic stock value is.

Stock Market Investing 102: Time Horizon, Risk Tolerance

Are you investing for retirement, to put your new child through college when he comes of age or for a vacation home as soon as you can afford it? The longer you have the more risk you can afford to take on. High risk growth stocks can make you a lot of money and they can crash. These are stocks to consider as a fraction of your portfolio when you are young. On the other hand dividend stocks from well established companies are a good idea as you approach retirement or whatever your goal may be. Also, you can always live without your home on the lake but you really do not want to miss out on your retirement nest egg. Think critically about what you want in life and engage in stock market investing accordingly.

Stock Market Investing 103: Diversification and Portfolios

It is a good idea to invest in more than one stock. If you have a couple of biotech startups that you like you may want to balance the risk of these investments with a stock that has a history of slow but steady growth as well as regular dividend payments. Whatever you buy for the short or long term you need to pay attention. Do not buy so many stocks that you cannot keep track.

Stock Market Investing 104: Nuts and Bolts

You can buy stocks for your retirement plan such as a 401K. You can buy directly through a broker. You can buy common stocks or preferred stocks. Preferred are usually more expensive and often provide a dividend that is paid before owners of common stock receive any. You can buy stocks in individual companies or shares of exchange traded funds that represent collections of stocks, gold bullion, etc. And, stock market investing is a business. Learn the ropes, examine your results, and get sound advice if you need it. Avoid tips unless you thoroughly check them out. And do not be afraid to simply invest in things that you know about and are comfortable with.

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What Will Happen to Interest Rates?

As the expected end of bond purchases drives stocks down it will likely drive interest rates up. The underlying purpose of the bond purchase stimulus program has been to drive interest rates down and keep them there. As the Fed gives up the job of soaking up all of the Treasury notes interest rates will rise. Fed chairman Bernanke has stated that the Fed will proceed slowly so as not to stifle the recovery. Another issue that has come to the fore is that of possible deflation of the US economy . During periods of deflation cash is king. Deflation makes you richer if you have money in the bank and poorer if you have extensive debt. Inflation raises the money value of homes and businesses over time and the debt taken on to purchase them becomes less of an issue. The reverse happens in deflation when homes and businesses become cheaper in relation to cash and debt can become overwhelming. If deflation occurs it is possible that you will need to pay a small amount of interest to the bank in return for them keeping an eye on your money. That is to say, deflation could lead to negative interest rates. As the possible end of bond purchases drives stocks down it also raises the possibility of deflation and the specter of negative interest rates.

Gold Will Become Less Attractive

The Federal Reserve and the nation are fortunate that the world expert on the root causes of the Great Depression took the helm of the Federal Reserve during the worst financial crisis in three quarters of a century. The take home lesson from fundamental analysis of the early 1930’s is that you need to stimulate the economy at times of economic contraction or risk having things get worse. As luck would have it Mr. Bernanke did exactly that and helped the nation avoid a second Great Depression. The stimulus bond program is part of the rescue package for the US economy. However, financial stimulus programs need to come to an end or they threaten to bankrupt the US government by loading on ever-increasing debt. As the end of bond purchases drives stocks down it will also lead to a further fall in gold prices. One is that gold tends to fall when interest rates go up, which will likely happen as the stimulus programs ends. Also, by reducing government spending the nation will more likely come to grips with its debt burden which will lead to fewer folks squirreling away gold as protection against financial collapse. If investing in gold interests you, you may want to wait until the fall is over and there is a bounce.

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