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Sell Before Sundown?

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It’s time for a perennial Wall Street debate to begin once more: What’s the correct trading strategy for the Jewish High Holy Days?
Over on the Wall Street Journal’s MarketBeat column, Mark Gaffen points out that the old adage “Buy Rosh Hashanah, sell Yom Kippur” has been working in reverse for a couple of decades now, with stocks falling between Rosh Hashanah and Yom Kippur.
“On average, from 1971 to 2005, the S&P 500 has fallen 0.4% between those days, with a number of real doozies, including a 2.2% decline in 2005 and a 1.9% drop in 2004. (The data doesn’t include 2006, when the market rose 1.6%.),” Gaffe explains.
Gaffen quotes Stock Trader’s Almanac’s Jeffrey Hirsch, who writes “Perhaps it’s Talmudic wisdom, but selling stocks before the eight-day span of the high holidays has avoided many declines, especially during uncertain times.”
Actually, we’ve heard the reverse of the adage—sell Rosh Hashanah, buy Yom Kipur—almost as many times as the other way around. We’re not even sure which one is the original.
We asked our friend Steven Weiss, who writes The Cannonist blog, for some clarification on the matter. “In order to accept any argument along these lines, wouldn't one first have to accept the premise that Jews really do control Wall Street?” Weiss said.
“Sell Rosh Hashanah, Buy Yom Kippur” might not only be more profitable, it seems to make more sense historically.
“Certainly the In order to concentrate on their prayers instead of their portfolios, there was a time when many Jews would sell their holdings ahead of the Days of Awe, or ‘Sell on Rosh Hashanah and buy on Yom Kippur,’” Greg Greenberg wrote on last year. Apparently this version goes back to the 1920s, when many believed that selling into the holiday was the strategy of the Loebs and other prominent Jewish financiers.
“That wouldn't by any means be the first time that matters of faith and calendar superseded best business practices in the Jewish community,” Weiss told us. “Even the Bible is rife with passages about times and situations in which business/property/profits are discarded to allow for anything from charity to recognition of God's glory.”
Last year Ticker Sense ran their own historical test on the question. “Looking back from 1915 on, we tested the performance of the DJIA from the last close before Rosh Hashanah until the last close before Yom Kippur (nine days). Then we also looked at how the Dow did from Yom Kippur until the end of the Gregorian calendar year (December 31st),” Ticker Sense explained. “As it turns out, the thing actually might work. The Dow averaged -0.62% from Rosh Hashanah until Yom Kippur, while it gained 1.99% from Yom Kippur to the end of the year.”
Of course, it’s always possible that both sayings are correct. How could that be? Like so much else on Wall Street, it all depends on your perspective. If the market really does under-perform from Rosh Hashanah to Yom Kippur, it might be a good time for traders with longer time horizons to buy stocks at a discount and then flip them when the market began to climb after Yom Kippur. Traders needing to show gains during the period, however, might be better off taking short positions.
“Gaffen's reversed saying could be what the non-Jews used to say, knowing that Jews were eager to get out of their positions before Rosh Hashana, and eager to get back in after Yom Kippur,” Weiss said.
Days of Awe, But Not for Stocks [MarketBeat]
The Almanac Investor's September Report [via]
Rosh Hashanah Selling []
Sell on Rosh Hashanah and Buy on Yom Kippur [TickerSense]
Steven Weiss's blog [TheCannonist]