Tuesday, February 28, 2012

MBAs can ID industry bubbles

MBAs have incredible predictive abilities and on aggregate clearly predicted the 2001 tech bubble pop and the 2008 one in finance.  Now you might this I've drunk the kool-aid of my own six-figure degree here, but I promise you I haven't.  At least not too much.

What I'm talking about instead is the fact that historic data from the recruiting offices of top-5 schools show big spikes in students accepting offers in these industries the year or two preceding the market drop.   Huge numbers of the graduating class of 2000 went west to join tech start ups, way more than in, say, 1998 or 2002 and you can see the same trend for the graduating class of 2007 and finance.

Unfortunately I don't have copies of this data to share with you, but there are a few things you can learn from it.

  1. MBAs are terrible at recognizing bubbles - This is on average and in aggregate, but clearly by taking these jobs the students have failed to recognize that these industries were due for a major market correction.
  2. MBAs are less useful the more there are together - A single business student can be quite rational but once you start pulling more of them into a group the more they tend to agree with each other.  This is particularly evident when something is "hot" or "exciting" because no one wants to miss out.  Fear of missing out is a hallmark of type A personalities and MBAs have it in spades.  The bigger the decision the bigger the effect, causing the group think that goes in to how students decide between job offers here.
So, is there current market information you can derive from my inside track on campus?  It doesn't seem like it this year.  Tech has seen a resurgence along with start ups, consulting and finance hiring is strong, and there's probably a lot more interest in healthcare than there was five years ago.  But nothing seems particularly hot or overheated.  So I think we're just slowly pulling out of the recession and finding some balance again.  But I would keep an eye on tech and healthcare over the next year or two as business schools publicize their careers data.

What do you think - are MBAs headed to an area in droves that seems prime for shorting?

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  1. Whenever everyone or in this case MBAs do something, I usually go the other way. This works in the stock market, real estate and others too. By the time everyone is going in a particular direction, it is definitely time to do something else.

  2. I've seen a similar trend at at suffolk business school before. Now thinking about that idea you wanted to present made me re-think about that school's MBA population again.