My Investing Notebook :: Learning from the pros; making decisions on my own. ::

Sell in May, buy in November?

It’s a technique that’s proven to yield good results. I wrote about it in 2007, see Sell in May, Buy Back in November.

Last year, the biggest losses were in that period. This year, I think it might be similar. Over the past couple of weeks, the stock market rebounded a great deal. I feel that stocks might be overvalued. Too fast too soon — that’s my general feeling.

I’ve sold several of my stocks recently. It’s not only because of this rule. I want to simplify my investing. I want to own companies that I know (TJX, PHG,NOK,F,CSCO,VZ are some that I’m sticking with). I want to own less stocks and more ETFs.

I’m going to test the impact of this rule, though. I have a larger share of my stocks in Consumer Staples (Kraft, General Mills, Procter&Gamble). Plus, I recently found a mutual fund that has a large short position, so in my retirement account, I investing a bit in it. It’ll benefit when the stocks go down.

I had a feeling that stocks were overvalued when the Dow reached 14K. But selling short is tough. I did several transactions, one of them was Wells Fargo. I did benefit, but with a wild stock market moves, I just bailed out. Investing in a Fund that has many short positions is better, I think. One that I found that is open and only requires $1K upfront is Comstock Capital Value R (CPCRX). It returned 57% in 2008! Had I known about these funds, I would have invested in them. Now I do, and this will help me in the long run. I learn something new every day. But this fund is expensive! It charges around 2% per year, I’ll have to find something else eventually. (Let me know if you know about something less expensive, that’s open and requires small position to invest.)

All in all, I think the stock market is due for a correction to the downside. The economy, though it seems it might be leveling off, is still in a bad position. Unemployment is high, foreclosures are mounting , house prices are sliding… Too much negative for the ecomomy to quickly rebound. I’m preparing for it a bit different this year, Sell in May, But in November.