Avoid a Summer Meltdown

Consider this fact, courtesy of Newsweek:

If you'd put $10,000 into the S&P 500 with a strict sell-in-May, buy-in-October strategy on May 1, 1950, you'd have ended 2006 with more than $600,000, according to calculations from Ned Davis Research. If you'd done the opposite, and invested every May 1 and sold every Sept. 1, you'd have $12,083. (If you'd just let it ride in a buy-and-hold strategy, you'd have $129,515, according to S&P.)

So is it time to cash out because the summer has rolled around? No, nein, nyet -- absolutely not.

There's money to be made year-round
Why not sell in May and go away? Well, there are the commission costs associated with trading, the headache of orchestrating such a process, the tax nightmare you'll create every April, and the real possibility of missing a fantastic run in one of your companies.

It would be hard to describe the type of frustration you'd feel after missing out on a summer like bebe stores (NASDAQ:BEBE) had last year when it moved 41% between June and September simply because you tried to replicate such an approach. Try convincing a former shareholder of Walgreen (NYSE:WAG) that selling just before last June was smart when the company went on to return 23%.

The Ned Davis data is compelling, but at least some of its benefits would be lost in implementation. Moreover, if you're buying individual stocks, then your analysis is more important than any macroeconomic market lull. And, finally, while the U.S. market seems to take a break during the summer, that's not true of some of its global counterparts.

Make money around the world
In each of the past four summers (June 1 to Sept. 1), the Hang Seng, Nikkei, Euronext 150, and Dax outperformed the S&P 500 a full 90% of the time.

While that's not enough data to draw a water-tight statistical conclusion, it does serve to make a larger point. And that point is that when U.S. stocks have lulled over the past few years, their international counterparts have gone right on outperforming.

Take a look at this list of international stocks that made tremendous moves in the beach months of 2006:

Am I suggesting that you trade up your U.S. companies for foreign ones simply because summer approaches? No, not collectively. But what I am suggesting is that you can do much better than a "sell in May" strategy if you research and find great companies around the world.

The Foolish bottom line
Although global markets are becoming more correlated, you can achieve great gains by finding the best companies each market has to offer. That's what we've set out to do at our Motley Fool Global Gains international investing service, and I encourage you to take a look at all of our research and recommendations free for 30 days. Just click here for more information.

Fool analyst Nick Kapur does not own shares of any company mentioned above. Nintendo and bebe are Stock Advisor recommendations. The Fool has a disclosure policy.