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Sell in May Go Away?

May 19, 2015 By E.J. Smith - Your Survival Guy

You can learn a thing or two from history. For one, it happened, it’s a fact, and 2) not many people predicted it correctly.

In Bill Bryson’s book One Summer “America 1927” he touches on the fateful decision by the Federal Reserve to lower its discount rate.

The stock market even before leading up to that fateful decision by the Federal Reserve was fueled by credit.

You could buy $100 worth of shares with $10 down. Brokers or banks were happy to lend you the money at 10-12 percent interest, which they borrowed from the Fed at 4 to 5 percent.

It all worked as long as the stock market went up.

Changing gears, the U.S. was on a gold standard, meaning every dollar was backed by gold. The Fed had a problem with this. To them, the massive amount of gold socked away in Manhattan wasn’t practical or easy to trade with Europe. Therefore, the Fed believed that by lowering rates holders of gold would want to move their savings to Europe to earn higher returns.

It didn’t work out that way.

Instead, the cut in the discount rates or easing, was “the spark that lit the forest fire” according to economist Liaquat Ahamed, igniting The Great Stock Market of 1928. Stocks doubled from their already nosebleed heights, broker loans to “investors” more than quadrupled and stocks could not lose, until they did.

And the rest is history.

Today, much like the 1920s we have a credit infused stock market. We are enjoying the fruits and labor of borrowed money. The stock market always does what it’s supposed to do. We just don’t know when.

Should you sell your stocks?

Hell no. But do make absolutely sure you’re being paid, in the form of dividends. Better yet, own the dividend paying stocks that have consistently increased them. And when you’re asked if you “Sell in May?” you can confidently respond, “No way.”

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E.J. Smith - Your Survival Guy
E.J. Smith - Your Survival Guy
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998.

E.J. has trained at Sig Sauer Academy in Epping, NH, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention.

E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris.

Please get in touch with E.J. at ejsmith@yoursurvivalguy.com

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