Now Is the Best Time of the Year to Invest

If you like historical stock market data and are looking to invest new money in the market, you can't just like this time of year -- you've got to love it.

Judged by the past 57 years, we're now in the middle of the three very best months of the year for the stock market. And they are followed by two of three next best.

I'm not making it up
Here's the data, as collected by moneychimp.com -- home of sometimes obscure, sometimes highly relevant numbers:

Add that all up (or multiply to get the correct answer), and here's what you get:

Average return, November to April: 6.52%.
Average return, May to October: 0.98%.

Yowza.

Surprised?
That's one of the lesser-reported stock market stats I've ever seen.

Of course, you've probably heard the old Wall Street adage to "sell in May and go away." So, there's some conventional wisdom that the summer has historically poor returns. Many are also aware that October (mother of a pair of Black Mondays, and more than a few other Black Days of the Week) is a scary month.

November, on the other hand, has clearly been a very good month for market returns, perhaps juiced by the weak three months that typically precede it. For 11 of the past 13 Novembers, the market has had positive returns. Of course, 2007 was one of the two where form did not hold.

There has to be an explanation for this
Are there reasons why there should be any disparity in the seasonal returns of stocks? Well, you can create some if you want. January buying, for example, could be explained by people spending their year-end bonuses and New Year's resolutions to be more financially responsible.

On the other side, the summer is a good time to get out of the home and office and concentrate on the weather rather than discounted cash flow equations. We can create any number of rationales for the numbers without any good way of proving them.

That said, I decided to look at some of the more prominent stocks in the market to see how they've fared over the past three six-month periods:

Obviously, when you get down to the level of individual stocks over short time periods, the results will not conform exactly to the historical averages -- and some of these companies illustrate that well. That said, the broader cycle of the past 19 months, with the exception of this past November, has resembled what we've seen over the past 50 years.

Ready to go
And that's one of the reasons why our Motley Fool Hidden Gems small-cap investing team is so excited. After a volatile past four months, the Russell 2000 small-cap index lags the S&P 500 and has lost 3.5% on the year. In other words, the stocks we focus on -- small caps -- are trading at cheaper relative valuations than they have since late 2005. Add to that the historical outperformance of small caps and the fact that we're entering a favorable time of the year for stocks, and we're looking forward to not only the next six months, but the opportunity to hold the great stocks we discover for the next decade or more.

If you'd like to join us at Hidden Gems and read about the two stocks we're recommending in our latest issue, click here to try the service free for 30 days. Our picks are currently outperforming the broader market by 29 percentage points on average, and there is no obligation to subscribe.

This article was first published Oct. 25, 2007. It has been updated.

Bill Barker does not own any of the stocks mentioned in this article. Johnson & Johnson is a Motley Fool Income Investor recommendation. The Motley Fool has a disclosure policy.