Everybody follows some investing principles and rules. The question is: if almost all Investors use the same principles, do they win? Probably not. For example, let's consider the "sell in May and go away" strategy that built on the historical under-performance of stocks from May to October in relation to November to April.

The chart below is 2000-2010 statistics for SP-500 performance that indicates the May-to-September weakness and strength from February to May (the result by Stock Market Analyzer-Predictor SMAP-3):



Firstly, this seasonal pattern is built on averages and it does not work perfectly all the time. Secondly, if most investors expect that others would do the same, they try to dump stocks earlier; prices go down and the rest of investors would not have a real benefit.

The more people know and use a particular principle, the less this principle may work. So that it is quite possible that even a time-tested strategy may not work. Will a seasonal strategy keep working in the future? Probably yes. At least in cases when the majority of investors get disappointed and stops using this strategy. Also that is why it is wise to use unique approaches that work well but not used by most stock market participants.

© Alex Shmatov. Published with permission of the copyright owner. Further reproduction strictly prohibited without permission.