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Harvard MBA Index Flashes ‘Sell’ Warning

Harvard University
Paul Glamou | Aurora | Getty Images
Harvard University

The best and the brightest young business minds in America are once again flocking to Wall Street—and tripping an offbeat alarm bell for the markets along the way.

More Harvard M.B.A. graduates took jobs on Wall Street last year than the previous year, when the financial sector was still reeling from the crisis of 2008. Thirty-one percent the class of 2010 took jobs in “market sensitive” positions in the financial sector.

This means that the threshold of the famous Harvard Business School Index has been tripped. Designed by a former banking analyst and Harvard Business School alumnus named Ray Soifer, the Harvard Business School Index looks at what portion of Harvard Business School graduates take “market-sensitive jobs” — a subset of the financial services category that includes investment banking, investment management, private equity, venture capital and hedge funds. When the portion exceeds 30 percent, it’s a sell signal. If the number is below 10 percent, it is a long-term buy signal.

A record 41 percent of the class of 2008 went into market sensitive positions — foreshadowing the financial crisis. The 2009 class was less Wall Street focused, with only 28 percent taking market sensitive careers. That shifted the index from a “sell” to a “neutral.”

We’re back in “sell” territory again. Four percent of the class of 2010 went to hedge funds, 10 percent went to work for investment banks, investment management got 5 percent of the class, private equity got 9 percent, and venture capital 3 percent. (You can see the numbers here, on Harvard's website.)

It’s interesting to see how the numbers have shifted. The investment banking career path is now even more attractive than it was before the financial crisis, when it drew 9 percent of the class of 2008. What’s more, the percent going to private equity firms declined a bit, down from 11 percent last year. Everything else is up, however.

Soifer has apparently retired from updating the index, which he always described as a “rather esoteric but nonetheless generally accurate” bellwether for markets.

Keep in mind that this might not portend an immediate market crash.

The indicator was parked on “sell” from 2005 through 2008.

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