Should You Buy in May and Sail Away?

Investing is easy. Long term equity market is bullish. That’s a fact. So just buy it.

Yet, people keep on trying to time the market, and -even worse- short it. OK let me be clear: I’m talking about long term investing here, not trading.

If you are a retail investor, why would you look at macroeconomic data, charts, trends, when you know that, whatever happens, market will continue to go up?

The Fed is here to keep things going (higher). If the economy gets sluggish, they will intervene, if a bank fail, they (or JP Morgan) will come to the rescue, if the overall equity market plummets, they will turn on the cash machine…

You see, whatever happens, market will go up. Rates will eventually go down.

I used to think that ISM Manufacturing and Services PMIs mattered, that Building Permits and Michigan Consumer sentiment index were leading indicators, that CPI data was important…

None are.

If you are a long term investor, just buy the market. The long-term average annual return of the S&P 500 has been around 10% to 11%.

Even Warren Buffet said it: “Consistently buy an S&P 500 low-cost index fund“.

Why would any retail investor try to time the market, pick stocks, go through fundamental research, spend endless hours to fine-tune their strategy… when all you need is a S&P 500 ETF ?

Just look at it, isn’t beautiful:


Do you really think the beast will go to 2000? Do you really want to be short?

“In the short-term it might go down… and it will”

What is “short-term”? A few months? A few years? Then what… it will go up again, reaching new highs as it always does. So why going against it? History repeats itself.

It just amazes me.

So I asked ChatGPT4, and here is the output:

"There are several reasons why someone might choose to go short the global equity market. Here are a few common motivations:

1. Profit from market downturns: When an investor expects the global equity market or specific stocks to decline in value, they may decide to go short. By selling borrowed shares and buying them back at a lower price, they can profit from the price difference.

2. Hedging against market risks: Institutional investors or fund managers may use short selling as a risk management tool to hedge their long positions. By taking short positions, they can offset potential losses in their long investments if the market experiences a decline.

3. Speculation on specific sectors or stocks: Traders who analyze market trends and company-specific factors may identify overvalued stocks or sectors they believe will decline. They may then take short positions to profit from those anticipated declines.

4. Portfolio diversification: Some investors may use short selling as a way to diversify their portfolios. Short positions can act as a hedge against long positions, potentially reducing overall portfolio risk.

5. Active trading strategies: Traders who engage in short-term or day trading may take short positions as part of their active trading strategies. They aim to profit from short-term market movements, regardless of the overall direction of the market.

It's important to note that short selling carries risks and requires careful analysis and understanding of the market. Short selling involves potential unlimited losses if the market or specific stocks rise in value instead of declining, as the investor would need to buy back the borrowed shares at a higher price."

It is a pretty sound answer: going short is mainly used for hedging and diversification, putting aside trading and speculation. We see that it is always in conjunction with other (long) positions, and that being naked short the global equity market is not really recommended (by our new Master ChatGPT).

Unless you are a reckless trader, it is pointless.

And there are so many other markets, stocks, assets for you to short.

Again, let’s ask ChatGPT4 about what to consider before going short:

"Here are a few factors that investors may consider when selecting an asset to short:

1. Overvalued stocks or sectors: Look for companies or sectors that appear to be trading at high valuations relative to their fundamentals or historical norms. This could be based on metrics like price-to-earnings ratio (P/E ratio), price-to-sales ratio (P/S ratio), or other valuation indicators.

2. Weak financial performance or negative news: Companies with deteriorating financials, declining sales, or negative news events may be candidates for shorting. Poor earnings reports, legal issues, or management troubles can impact a company's stock price negatively.

3. Industry or sector trends: Analyze industry trends and macroeconomic factors that could impact specific sectors. For example, if there are signs of an economic downturn or regulatory changes that could adversely affect a particular industry, shorting stocks within that sector might be considered.

4. Technical analysis: Some traders use technical analysis to identify stocks or assets that exhibit chart patterns or other indicators signaling a potential price decline. Technical indicators such as moving averages, trendlines, or patterns like head and shoulders can be used to spot potential shorting opportunities.

5. Contrarian views: Taking a contrarian approach involves identifying assets that are overly popular or experiencing a strong bullish sentiment. If there are indications that market sentiment is excessively positive and may be due for a correction, shorting such assets might be considered.

It's crucial to conduct thorough research, consider different perspectives, and, if needed, consult with financial advisors or professionals who can provide insights tailored to your specific investment goals and risk tolerance."

It is interesting to note that it pretty much says that going short is reserved to specific assets, not the global market.

I guess it is clear: be careful if you intend to short the S&P 500!

Even the latest ISM Manufacturing PMI (for what it is worth) suggests so:


It is still below 50 but “green”, above forecast and March data point.

Is it a buy signal, or a Bull trap ?

Time will tell, and long-time will confirm it is a buy signal!

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This article was originally published on the Trading & Investing strategies newsletter, read by a community of traders, investors and hedge fund managers.