This is why I’m deeply skeptical about most investment “rules.” Instead, I look at the empirical data, test it against theory, and use a wide range of indicators instead of just one. Ideally, each of those indicators is based on different fundamentals. Then, at the end, I accept the fact that I might be wrong—and try hard to figure out ahead of time why that might be.
The sell in May rule is a good example of how not to invest. The benefits are speculative and uncertain. What is certain are the costs, in transaction fees and potentially taxes. Over time, it simply doesn’t make sense. You're better off spending your time and energy trying to understand what’s actually going on.
Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held independent broker/dealer-RIA. He is the primary spokesperson for Commonwealth’s investment divisions. This post originally appeared on The Independent Market Observer, a daily blog authored by McMillan.