Hulbert: Don't Believe These Old Market Adages

When investors follow popular stock market beliefs and seasonal patterns, the only people who make money are the brokers earnings trading fees from the subsequent buying and selling, writes Mark Hulbert in last week’s USA TODAY.

Hulbert, founder of the Hulbert Financial Digest, shared his insights on the following three widely-assumed “strikes” against the market:

  1. “Sell in May and go away:” The notion that investors should go to cash on May 1st and not return to the market until Halloween. Hulbert argues that, while over the last ten years the market has tended to show strong performance between Halloween and May, research conducted earlier this year shows that this tendency occurs “almost exclusively” during a third presidential term.
  2. Stocks suffer in the first two years of a presidential term. Again, data does not support this common belief, writes Hulbert, that performance is suppressed as the president “gets the economy to swallow whatever economic medicine is necessary to ensure a roaring economy as the subsequent election approaches.” Historically, he argues, “This different is not big enough to satisfy a statistician that it is more than mere noise.”
  3. Equities suffer in the seventh year of a decade. According to Hulbert, this belief probably emerged after “a handful of particularly bad years that ended in “7”, such as the 1987 crash and the 2007 financial crisis.” However, Hulbert contends, there have been other years that have been very strong for equities, such as 1997—when the DJIA gained 22.6%, more than double its historical average.

Hulbert concludes that, while his arguments don’t ensure that the market won’t dip in the coming months, it strongly suggests that any decrease won’t be attributable to these widely-held beliefs.  He says the best advice remains intact: “Invest in a broad-based index fund and hold through thick and thin. Your profit over the long term will almost certainly be better.”