Stocks - should you stay away in May?

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(MoneyWatch) The month of May will begin on Wednesday and one of the most reliable historic stock market patterns is "stay away in May." The data is compelling that stocks perform the best between November 1 and April 30 and have little return between May 1 and the end of October 31. Last year, Forbes noted research that since 1945, the S&P 500 returned only 1.2 percent between May and October while it averaged 6.9 percent between November and April.

I'm always skeptical of people noting patterns and this was a hot topic last May. Did it work going forward? In 2012, U.S. stocks soared 16.5 percent as measured by the Vanguard Total Stock Market Index ETF (VTI). Of that amount, only 1.7 percent came between May and October. In short, it worked brilliantly.

Why, I'm staying a bit away this May

Though I admit that I lightened up on stocks in April, is that an indication that I have finally succumbed to technical analysis? Not on your life. It's actually an indication that I'm a believer in rebalancing. After a stellar 2012, U.S. stocks are up another 11.7 percent this year. Now, believers in this pattern would point out that US stocks are up 14.0 percent since October 31 of last year, and it's time to bail from stocks altogether.

I'm still not buying the argument. And the reason I'm not has less to do with any clue I might have about how stocks will do between May and October, and more to do with the fact that it's human nature to find patterns out of randomness. Not to mention the fact that countless patterns have failed going forward.

Let's face it, if I found a pattern that worked and I believed would work in the future, the last thing I'd do is write about it.  

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.