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Stock Market Correction: Maybe Now? July 28, 2007

Posted by pf in Expenses and Savings, Portfolio Allocation.
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On May 1st, I made some significant changes in my portolio based upon the history of the old adage “sell in May and go away” and updated everyone near the end of May on the progress thus far (post here: Sell Stocks in May and Go Away: Update )…which was not so great.

In June, the market dropped a bit and I posted another update (Stock Market Correction: Now?).  Again, this was short-lived and the market proceeded to go on a very steady and purposeful march upward to new highs.  During this time, although I missed out on greater returns had I not changed my portfolio, I was still getting some positive results as I remained invested in equities (just less risky ones). 

 Well, here we are again at the end of July and the market is showing some its potential for nastiness with its worst week in the last 4 years.  Interestingly, these last few weeks I had been wondering whether or not I should actually take my tactical strategy even further and reduce the risk to my portfolio even further given the continued strength in the market.  Once again, I did not have the courage to match my conviction and my chance has passed (and about $7000 of my portfolio along with it). 

 Alas, I am not entirely bummed, but more frustrated with this silly game of chance we call the stock market and my apparent ineptitude at playing.  Of course, my intent is really not to “play” in the stock market.  I’m much more of a buy/hold type investor who likes to keep my allocatoins steady.  At the same time, however, I am willing to dally in this whole sell in may bit to see if it can give me some sustainable advantage over the long haul.  Perhaps next time around I will have to seriously consider going all the way and getting into cash versus my half-hearted attempt by just reducing some of my exposure. 

Anyway, I’m starting to feel a little bit like the kid who says “are we there yet?”.  Regardless, my current inclination is to continue hanging on until Fall.  Of course, that’s assuming things don’t look like they’ll get significantly worse.  In the meantime, I’m going to seriously look at what kind of cash I might be willing to plow back into the market when the time comes (the sell in may approach says November). 

Good luck! 

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Comments»

1. Mr. Shiney - July 28, 2007

I’m surprised a buy and hold investor would adopt a speculative strategy like sell in may. It’s true that a lot of stocks disappoint in the summertime, but a good company with solid fundamentals should continue to earn over time. If you expect a stock to dip in the summer you should be buying not selling, unless the stock isn’t worth the share price in which case why are you bothering with it?

2. pf - July 29, 2007

I think you make a fair comment. To the extent that “sell in may” has a statistically proven track record, I’m a bit more comfortable with the idea as a potential means to increase my long term returns as opposed to pure speculation. However, whether or not I can successfully execute such a tactical manuever remains to be seen. Further, I don’t disagree that the idea should be to “buy on the dips”. Actually, that’s the intent, no? I will buy again in the Fall…after prices have taken a bit of a tumble.

In the end, this is an experiment. I figure the worst that can happen is that I will miss out on some positive returns (which had happened during the first couple of months). At best, this may work (more or less) and I learn a little bit from it and see whether or not its something to bother with in the future.

3. plonkee money » 111th carnival of personal finance - glastonbury edition - July 30, 2007

[…] stock market correction: maybe now? @ my personal finance odyssey, trying out the sell in May and go away adage […]


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