What Is the Harvard MBA Indicator?
Let me explain the Harvard MBA Indicator to you directly—it's a contrarian long-term stock market indicator that looks at the percentage of Harvard Business School MBA graduates who accept what we call 'market sensitive' jobs. These jobs are in areas like investment banking, securities sales and trading, private equity, venture capital, and leveraged buyouts.
If more than 30% of a graduating class takes these jobs, the indicator generates a sell signal for stocks. On the other hand, if less than 10% go into this sector, it's a long-term buy signal. Anything in between is neutral territory.
Key Takeaways
You should know that the Harvard MBA Indicator provides long-term market signals based on how many new Harvard MBAs enter the securities markets. As a contrarian indicator, it signals a sell when more than 30% take those jobs and a buy when fewer than 10% do. Overall, it tends to produce more sell signals than buy signals, and it correctly predicted the bear markets of 1987, 2000, and 2008.
Understanding the Harvard MBA Indicator
I want to dive into the background here—this indicator was started and maintained since 2001 by investment consultant Roy Soifer, who got his MBA from Harvard Business School in 1965. It issued sell signals in 1987 and 2000, both of which were disastrous years for the stock market. This esoteric tool is designed to give long-term signals based on how attractive Wall Street jobs seem to grads. When more of them are drawn to Wall Street, it suggests the sector is getting bloated and the market might be approaching a peak. Conversely, when markets are down, fewer grads want in.
The contrarian nature comes from the idea that mirrors the old adage: when everyone is rushing in, it's time for you to get out. Herding behavior like that often points to an upcoming reversal.
Performance of the Harvard MBA Indicator
From what Soifer has shared, this indicator generates far more sell signals than buy ones. The last time it hit the 10% buy level was in 1982, which kicked off a historic bull market. As far as records go, the low was in 1937 when only about 1%—just three MBAs—went into Wall Street, and that was a prime time to buy. The high came in 2008 at 41%, right before the market crashed into the Great Recession.
Soifer describes his index as a rather esoteric but generally accurate long-term guide to stock market direction, and based on its track record, you can see why.
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