Harvard MBA Indicator

Published on :

21 Aug, 2024

Blog Author :

Edited by :

Reviewed by :

The Harvard MBA Indicator is a stock market indicator that predicts future stock market performance in certain sectors based on the industries and fields Harvard MBAs choose as their career. It studies the proportion and distribution of Harvard Business School graduates who take up “market-sensitive jobs” (such as banking, private equity, etc.) to determine the market trajectory.

The Harvard MBA Indicator sheds light on the interests and preferences of the crème de la crème among management professionals. Through this indicator, analysts and investors can understand the direction stock markets are likely to take and the sectors likely to see more growth. It also explains investment preferences. For instance, it indicates if private equity will be preferred over hedge funds.

What Is A Harvard MBA Indicator?

The Harvard MBA Indicator is a stock market indicator. The indicator uses the proportion of Harvard Business School graduates who choose to work in finance to measure how well-liked stocks are with investors.
Selling equities is advised when more than 30% of Harvard Business School MBA graduates choose to work on Wall Street or take up finance jobs like investment banking and private equity. On the other hand, if less than 10% of Harvard MBA graduates choose careers in finance, it is a good indication to buy equities.
Roy Soifer, a consultant and former student at HBS, developed and promoted the Harvard MBA indicator.

How Does Harvard MBA Indicator Work?

The Harvard MBA Indicator is a stock market indicator that measures the proportion of Harvard Business School graduates who choose to work in certain fields to ascertain how well-liked the stocks of these sectors are among investors. Selling equities is recommended when more than 30% of Harvard Business School MBA graduates choose to work in financial positions like investment banking and private equity.

On the other hand, if less than 10% of Harvard MBA graduates choose careers in finance, it is an indication to buy equities. When Harvard graduates make a beeline for Wall Street, a stock market crash is on the horizon, according to the Harvard MBA Indicator.

To explain in detail, Harvard graduates pick the companies they like when entering the job market. They select industries that offer the most lucrative opportunities. When the money flow on Wall Street improves, Harvard students are drawn to finance jobs. Based on the upward-moving trend, a huge number of students accept assignments in finance.

However, this usually does not last long. Hence, as the market saturates/peaks (even after continued efforts for further growth), the bubble formed by the boom in the finance sector eventually bursts. Precisely for this reason, the indicator recommends investors exit the market when more and more Harvard graduates choose to enter Wall Street.

Based on the job decisions made by Harvard graduates, the indicator helps professionals and prospective investors determine the state of the stock market. In other words, when many Harvard Business School graduates pursue jobs in finance, banking, and other similarly market-sensitive businesses, it is the best time for investors to sell their stocks.

While it reflects the underrepresentation of Harvard MBAs in conventional fields like manufacturing, retail, real estate, etc., the Harvard MBA Indicator can guide aspirants in these fields keen to succeed. The higher the number of Harvard graduates opting to work on Wall Street or undertake jobs in finance, the market is more likely to turn bearish. On the other hand, if Harvard graduates are not interested in working in sectors susceptible to market changes, it indicates the stock market is likely to do well.

History

Roy Soifer, a consultant and former student at HBS, introduced the Harvard MBA indicator. The technique was applied to produce stock market warnings/alerts between 1987 and 2000. It is now well-known that the stock market indeed saw a downturn in 1987 and 2000. The long-term stock market indicator is employed to forecast the stock market's direction based on the number of Harvard graduates applying for jobs in market-sensitive sectors (private equity, investment banking, hedge funds, etc.).

Examples

The following examples illustrate the uses of the Harvard MBA Indicator. Let us study them to understand the concept well.

Example #1

Let us take the example of an investment firm. It regularly makes more job offers to Harvard business school candidates than other candidates. Their human resource representative explains why they prefer Harvard MBAs. People with Harvard MBAs typically have outstanding credentials and demonstrate unique intelligence.

Most people attend business schools to grow as professionals and learn, making them ideal candidates for critical jobs, especially management positions. The diversity of their student body exposes students to various international industries, helps them build contacts, and gives them access to insider knowledge about many industries.

Example #2

The Harvard MBA Indicator has always been more accurate about selling stocks than buying. A record-breaking 41% of the Harvard MBA Class of 2008 accepted jobs in market-sensitive sectors. This activated heavy sell signals just before the 2008 financial crisis that triggered the stock market plunge during the Great Recession of 2008.

The following year, only 28% of the MBA Class of 2009 chose market-sensitive jobs. This can be considered a slight deviation from the general trend. In this case, the indicator had changed from “sell” to “neutral”, and the corresponding changes were seen in the market.

Performance

The Harvard MBA Indicator has consistently given more "sell" signals than "buy" signals, with particularly strong performances in 1987, 2000–2002, and 2005–2008. The last time it gave buy signals was when another indicator, the Dow Jones Industrial Average, was trading below 1,000 in the early 1980s at the 10% “buy” threshold.

The lowest point in history was registered in 1937. In that year, only three graduates, or around 1% of the total, chose to enter the securities market.

Frequently Asked Questions (FAQs)

1. Is the Harvard MBA Indicator reliable for making investment decisions?

The indicator is an observation, and the inferences should be cautiously noted. This indicator has given more accurate results for selling stocks, but investors must tread cautiously while making decisions. In addition, decisions based on just one indicator should be avoided, especially if one is new to investing.

2. What is the significance of the Harvard MBA Indicator?

It gives a different perspective on analyzing the stock market. The decision-makers at large corporations are genius minds (like those from Harvard). The indicator attempts to observe the patterns in their choices. It is an attempt to peek into knowledgeable minds to gauge stock market movements.

3. What can the Harvard MBA Indicator tell about the next bubble?

When more than 30% of Harvard graduates take up jobs in finance, a dip in the stock market is usually expected. In 2022, a considerable 33% of the employed graduates accepted jobs in finance, making it the highest among the fields chosen. Hence, this conveys a sell signal.