The Harvard MBA Indicator is a contrarian long-term stock market predictor that evaluates the percentage of Harvard Business School (HBS) MBA graduates who accept occupations associated with market fluctuations. These roles are in fields such as investment banking, securities sales and trading, private equity, venture capital, and leveraged buyouts.
If over 30% of a graduating class enter these market-sensitive professions, the Harvard MBA Indicator triggers a sell signal for stocks. Conversely, if fewer than 10% choose these sectors, it signifies a long-term buy signal for stocks. When this percentage falls between these two extremes, it is considered neutral.
Key Takeaways
- The Harvard MBA Indicator generates long-term market signals based on the proportion of new HBS MBAs entering the securities markets.
- It acts as a contrarian indicator: more than 30% taking market-sensitive jobs signals a sell, while under 10% signals a buy.
- The indicator has historically forecasted several major bear markets, including those in 1987, 2000, and 2008.
Delving into the Harvard MBA Indicator
Initiated and maintained since 2001 by investment consultant and HBS graduate Roy Soifer (class of 1965), the Harvard MBA Indicator has been a notable predictor. It accurately forecasted sell signals in the tumultuous years of 1987 and 2000. This unique indicator reflects long-term trends based on the relative allure of Wall Street occupations. A higher number of graduates flocking to these jobs often means that Wall Street is overinflated, signaling a market peak. Conversely, market slumps deter graduates from these careers.
As a contrarian indicator, it resonates with the adage, “When everyone else is looking to get in, it’s time to get out.” This suggests that widespread enthusiasm for specific career paths can be a precursor to market reversals.
Soifer notes that the Harvard MBA Indicator more frequently issues sell signals than buy signals. The last instance of reaching the 10% buy threshold was in 1982, which preceded a historic bull market. Soifer mentions, “To my knowledge, the record low was set in 1937, with only three MBAs, roughly 1%, opting for Wall Street—an optimal time to buy.” The record peak of 41% occurred in 2008, just before the stock market meltdown that contributed to the Great Recession.
Soifer deems his index as “esoteric yet generally accurate” for long-term market direction predictions.
Related Terms: contrarian investing, stock market signals, economic indicators, MBA career trends.
References
- Soifer Consulting. “2017 Harvard MBA Indicator Is Still Bullish”.
Get ready to put your knowledge to the test with this intriguing quiz!
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## What does the Harvard MBA Indicator aim to forecast?
- [ ] The general acceptance rates of Harvard MBA applications
- [x] The future performance of the stock market
- [ ] The career success of Harvard MBA graduates
- [ ] Tuition fee trends for MBA programs
## The Harvard MBA Indicator is based on which factor primarily?
- [ ] The median salary of Harvard MBA graduates
- [x] The proportion of Harvard MBA students entering finance-related jobs
- [ ] Enrollment numbers in Harvard’s MBA program
- [ ] The geographical location of MBA alumni
## What assumption underlies the Harvard MBA Indicator?
- [x] A higher proportion of MBAs entering finance correlates with stock market peaks
- [ ] An increase in MBA enrollments predicts market downturns
- [ ] Higher salaries of MBAs predict better market performance
- [ ] The indicator works independently of economic cycles
## Which result contradicts the predictions of the Harvard MBA Indicator?
- [ ] Stock market declines following fewer MBAs entering finance
- [x] Continued stock market rallies despite most MBAs pursuing finance careers
- [ ] Seasonal variations in the stock market
- [ ] Stable market performance regardless of MBA career choices
## When the Harvard MBA Indicator shows a high percentage of graduates entering finance, it typically signals what?
- [ ] An emerging technologies boom
- [x] Possible overvaluation in financial markets
- [ ] Stability in global markets
- [ ] Increased profitability in manufacturing sectors
## How is historical data used in the Harvard MBA Indicator?
- [x] Analyzing trends of MBA graduates’ career choices over the decades
- [ ] Manufacturing and employment data correlation
- [ ] Inflation and interest rates comparison
- [ ] Measures of global economic growth
## One major criticism of the Harvard MBA Indicator is:
- [ ] Lack of comprehensive data for its calculations
- [x] It lacks theoretical and empirical support as a predictor of stock market movement
- [ ] Its highly complex statistical procedures
- [ ] Influence of non-economic factors on its outcomes
## Which other financial indicator can be compared to the Harvard MBA Indicator for similar purposes?
- [ ] Price-to-earnings ratio
- [x] Lipstick Index
- [ ] Quarterly corporate earnings reports
- [ ] National housing starts data
## The logic of the Harvard MBA Indicator can best be summarized as:
- [°] More MBAs in finance equals more stock market gains
- [x] More MBAs in finance implies speculative excess and potential market bubble
- [ ] More MBAs in finance means higher employment rates
- [ ] An increase in MBA graduates predicts GDP growth
## As of recent times, what relevance does the Harvard MBA Indicator retain?
- [ ] It’s a definitive measure recognized by all economists
- [ ] Predominantly factors in academic studies
- [x] Mostly viewed with skepticism
- [ ] Functionally obsolete in economic predictions
