Why maxim ‘sell in May and go away ’ is so true

SELL in May

and go away. That’s an old Wall Street saying concerning the stock market that — basically — has no basis in logic except for the fact that if enough investors know it, hear it and believe it, the advice tends to come true.

Today, of course, is the first day of May.

You might have noticed that a lot of people have been selling stocks for weeks, despite the fact that corporate profits have been excellent thanks to the tax law changes. I guess they believe in the ditty so much they wanted to get a jump on everyone else.

So now the saying probably should be: “With everyone else selling in May, don’t be a fool. Do it in Aprool.” I know, that’s a bad rhyme. But if it isn’t catchy, people won’t remember it, the advice will be lost, and I won’t become famous for saying it first.

In fact, if you sold stocks in January — when the Dow Jones industrial average was at a record 26,616 and up 5.6 percent for that month — and took off, you would have made out great so far.

The Dow closed Monday at 24,163 — down 148.04.

Before you think that the 2017 tax overhaul comes without a price, remember that it will cause the terrible debt situation in the US to get worse.

It is already causing borrowing costs to rise more quickly than they would have. And it’s forcing the Federal Reserve (which meets again this week) to boost the rates it controls, even if the economy really isn’t ready for it.

Increasing interest rates have been the main reason stocks are under downward pressure. The detrimental effects of the tax cuts are already cooked into the economy. US debt has risen by more than $1 trillion in just six months.

The benefits of the tax cuts — like higher corporate profits that help the stock market — need to start aiding the overall economy or those tax changes are going to quickly look like a bad idea.

Now, let’s get back to that “sell in May” advice.

Professional money managers often make most of their money early in the year. And when they do, they can relax during the summer — before returning to work after Labor Day.

Unless something big happens in the world economy or in Washington — and that could happen this year with all that’s going on politically — not making major investment decisions during the summer is often the smartest non-move.

There will always be occasional spurts upward in the stock market. Many are artificially induced, like at the end of each month when money managers have to show their results to clients and their bosses.

And there will be big declines, like the nearly 500-point drop in the Dow that occurred last week, when the market has a tantrum.

But, generally, summer is quiet. So “sell in May” has taken on a life of its own.

People tend to pay a lot of attention to the stock market and very little attention to bonds.

Why? Because they don’t think they have any money invested in the bond market. Or, they think that bonds are completely safe.

Well, you might want to check the performance of your investments before too long because you may be more vulnerable to what’s happening to bonds than you think.

As you’ve probably heard, interest rates are rising and will likely be climbing more in the months and years ahead. I’ve warned you that this was going to happen — because of the humongous US debt level, the tax cuts and other things — but now it really is occurring.

And when interest rates go up, the price of bonds (including what are called “bills” and “notes”) goes down. Automatically!

Those funds you have your retirement money in tend to diversify into bonds. And over the past few decades, bonds have been less volatile than stocks have and, so, at least some of the money invested by professionally managed diversified funds are in bonds.

So, you are probably losing money and don’t even know it. Check the performance of your IRAs, 401(k)s and other accounts. If the value is going down, it might not be a problem with the stock market.

It might be a problem with bonds.

A while back, I found myself wondering in this column what would happen if self-driving cars screwed up. Who’d be at fault?

Pretty soon afterward, an Arizona pedestrian was killed by one of those autonomous cars and now everyone is wondering about the future of these guided missiles. There’s another technological advancement that has me curious: How will these DNA testing services affect affirmative action? Case in point, a friend of mine who has been Italian all his life recently found out that he’s actually 3 percent African. Since his family came from Sicily and he’s always been olive-skinned, that is not surprising. But could my friend, who I will call Mike because that’s his name, have applied for scholarships, favorable admission and the like to universities because of that 3 percent? Mike’s too old now to learn anything, so this won’t matter to him. But how about the millions of kids who apply to schools and jobs each year who could get beneficial treatment because of this? I called around to some universities and they didn’t want to, or wouldn’t, discuss the matter. But could people finding out they have a slice of minority in them complicate affirmative action? Dunno, but it has me wondering.