Friday, November 6, 2009

Stock indicator of the month

from dealbreaker.com

If you have interviewed people at HBS and know the market, this makes perfect sense.


2009 Harvard MBA Indicator Shifts to ‘Neutral’
by Ray Soifer

For many years I have been keeping track of a rather esoteric but nonetheless generally accurate long-term indicator of the US equity market: the percentage of Harvard MBA graduates choosing careers in Wall Street and related market-sensitive fields. If 10% or less of the year's class take market-sensitive jobs (which I identify, using the Business School's current reporting categories, as investment banking, investment management, hedge funds, sales & trading, venture capital, private equity or leveraged buy-outs), that's a long-term ‘Buy’ signal. If 30% or more do so, that's a long-term ‘Sell’ signal.
Data released by HBS show that 28% of the MBA class of 2009 chose market-sensitive careers, compared with a record 41% a year earlier. The indicator has thus shifted from ‘Sell’ to ‘Neutral.’
Financial services as a whole attracted 32% of the 2009 graduates, down from 45% in 2008, while consulting drew 26%, up from 20%. Other services accounted for 15%, down from 18%, and manufacturing 27%, up from 17%.
Historically, the Harvard MBA indicator has been more prolific as a source of 'Sell' signals -- e.g., 1987, 2000-02, and 2005-08 -- than 'Buy' signals. The last time it reached the 10% 'Buy' level was in the early 1980s, when the Dow traded below 1,000. As far as I am aware, the all-time low was reached in 1937, when only three graduates -- about 1% -- were adventurous enough to venture into the securities industry. If you had bought stocks in the fall of 1937, you'd have done pretty well since.
As a market-timing tool, the Harvard MBA indicator has some obvious drawbacks. It only comes out once a year, with a long reporting lag: most graduates make their decisions in the spring, or earlier, but the figures are not released until the following autumn. Yet, for long-term investors who can think in terms of decades rather than months or quarters, it's worth keeping an eye on. Besides, it's fun!

Telephone: 1.520.648.1538
E-mail: ray@soiferconsulting.com

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