Former analyst becomes reverse indicator

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August’s stock market gyrations caused particular alarm for Ray Soifer, a consultant based in Green Valley, Arizona, perhaps best known for his Harvard MBA index.

This reverse indicator tracks the number of Harvard MBA graduates taking employment on Wall Street, signalling that a financial downturn is usually imminent when large numbers of these wannabe masters of the universe seek investment banking jobs. 

In his past life as an equity analyst covering bank stocks, Soifer was a favourite of Euromoney’s. We often used to stop by his offices at Brown Brothers Harriman on Wall Street, partly to revel in the old-fashioned gentleman’s club atmosphere – all heavy wooden chairs, library-like quiet, and the odd glass of sherry – but mostly to hear his pithy insights into the great and good leading US banks in the 1990s.

Last month, Soifer wrote to the FT on a favourite topic: the uselessness of equity analysts’ buy/sell/hold recommendations, pointing out that analysts have no way of knowing the suitability of such recommendations for any particular investor. It was an argument Soifer admitted he first heard from the economist Henry Kaufman: "Instead of buy/sell recommendations," he said, "analysts should concentrate on improving the accuracy of their financial forecasts. A worthy objective and one in which economists might wish to join."

With most sell-side analysts recommendations being to "buy" last month, Soifer was alarmed to see the S&P500 sell off by 3% the day after his letter appeared. "I worked as a sell-side analyst for 17 years, and I cannot recall any such market reaction to any recommendation I ever made during that period," Soifer tells friends. Startled, he looked up the last occasion he wrote to the FT on this topic. It was August 1, 2007; two months before a market crash began that lasted until 2009.

"Two data points do not a market indicator make, and I take no responsibility," Soifer says "but the next time I write to the FT, I’ll pick another subject." Just as well.