The Beardstown Ladies

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Beardstown ladies 23.4% claimIn 1983 a group of elderly women in a little town in the Midwest called Beardstown, decided to form an investment club called the Beardstown Business and Professional Women’s Investment Club. The meetings were focussed on companies whose business they could understand and relate to.

Their methodology was simple. Every member put in $100 seed money and $25 thereafter every month. Each member chose a company and learned as much as possible about the company’s business and pitched the findings to the rest of the women. If the rest of the team thought there was value investing in the company, they added the company to their portfolio. This way, the ladies narrowed down to a core set of companies they believed was worth investing in.

One of them was wearing a pacemaker made by Medtronic, which led them to research and eventually buy shares in Medtronic. Shares of Walmart was in their portfolio after noticing how the nearby Walmart’s parking lot was never empty. The ladies’ acumen started to pay off. Their investments grew steadily and they were soon beating well known fund managers and market indexes. News of their success reached Wall Street and attracted media attention. Soon the ladies started appearing in ‘The Morning Show’, Oprah, Donahue, Today’s Show and Good Morning America. They were treated like celebrities and they started giving speaking engagements sharing their insights and giving stock tips. The message was simple but powerful. If we, a bunch of 70-year-olds can do it, so can you.

In 1994, they published their first book – The Beardstown Ladies Common-Sense Investment Guide: How We Beat the Market and How You Can Too, which sold over 800,000 copies! The book’s claims of returns of 23.4% since inception which beat all the major indexes at that time, left Wall Street pundits stunned.

But at least one analyst had his doubts. An article questioning their claims appeared in The Chicago Magazine titled ‘Debunking the myth of the Beardstown Ladies and their spectacular stock market gains‘.

Stung, the Beardstown Ladies hired an auditing firm to audit their returns. The Analyst was right. The actual returns turned out to be 9.1%, much lower than the 23.4% the club initially claimed. That was their fall from grace. The book’s publisher was sued for making that claim and 4 years later, they settled. With an apology, the Beardstown Ladies faded into oblivion.

So what happened? Here’s what Betty Sinnock, one of the founding members of the club, had to say:

I entered the data as of 12/31/91 and I thought I was inputting the data so the first eight years would be included in our returns. Because of this, when the computer showed an annual return for our members in 1993 of 23.4 percent, I thought it was for the first 10 years and shared the information with the rest of the ladies.

It was simply a case of not knowing how to compute the annualized rate of return. Their intention was not to defraud people. Had they hired a competent accountant instead of taking a diy approach, they could’ve avoided the embarrassment. Their returns weren’t too bad. In fact, their annual return since inception in 1998 was 15.3% which actually beat the Dow!

Was the treatment justified? In my opinion no. The Beardstown Ladies were simple folks who believed in their motto – Education, Enjoyment and Enrichment. They did prove anyone can learn investing if they put in the time and effort to educate themselves. They probably came out smiling after the dot com crash when others were left losing their shirts and holding their pants.

Here’s a question to you: Do you really know how your portfolio is performing? Do you know what your annualized rate of return is? Remember the number your broker provides is simply your percentage gain or loss. It does not tell you the APY. So how can you tell the performance of your portfolio?

Stay tuned, I’ll go over an easy method to truly determine how your portfolio is doing!

As for the Beardstown Ladies, they continue to meet as of this post.

20 thoughts on “The Beardstown Ladies

  1. You know, it’s a shame but I don’t know how my portfolio is performing. We have 401K plans and I check the balances fom time to time, and all I care is if we are making anything. So far we were okay (not too bad, not too good). I know how lame it sounds. In the begining we did thought it through and analyzed and invested. After that – we did not do a thing.

    I really enjoyed reading your post. Today I discovered something new for myself. Thank you for sharing. I am going to check out this book. Sounds fascinating!

  2. I have to admit I don’t know my APY… I know how it did in 2010, but I don’t keep a good enough record year to year. :(
    I’m staying tune for the next post!

  3. Considering I’m a die-hard investor, I do know my exact annualized return:
    1yr – 20.43% vs. 17.47% for S&P500
    3yr – 6.21% vs. -1.42% for S&P500
    5yr – 5.39% vs. 0.87% for S&P500

    Whether or not you agree with their marketing, these ladies did know how to invest!

  4. @Aloysa: Thanks for your support, I really appreciate it. Investing is a life-long learning experience. We all learn something new everyday. Calculating annualized returns involves a little bit of math, but I’ll make it really simple. I’ll be doing a follow up in the coming weeks.

    @RB40: Annualized returns should be something the brokers should provide. It’s a shame most don’t.

    @Robert: You are doing pretty good! And yes I agree, these ladies know how to invest! It was really sad to see some of the comments this book received in Amazon. These folks are better of following a Cramer.

  5. I felt so bad for the Beardstown Ladies!

    I do not know our APY either. I do have a goal of sitting down and going through everything in the next month or so and seeing where we stand.

    Great post Moneycone, I kind of forgot about the BL. Thanks for the reminder about tracking our investment more closely.

  6. @Everyday Tips: You are welcome Kris!

  7. Thanks for sharing. I recall this story, but it’s been a while so many people a bit younger might not have been familiar. Good story to learn from on many levels. Know how to calculate your returns, no question about it. It’s important not as much for credibility as in their case, but to know how your past strategies worked so you can make the right adjustments going forward.

    I still give these ladies credit, they took the initiative to do all this and they still got decent returns. I didn’t know that they continue to meet – that’s kind of cool!

  8. @Squirrelers: Oh definitely!

    Apparently, the club is doing pretty well. The ladies simply don’t reveal the returns any more! Some of them passed away, some new members were added, but they continue to meet!

    It is actually quite fascinating, though rather unfortunate what happened. The media was brutal after the fall. Remember this was right during the boom time when pundits were claiming the old ways of judging companies are no longer valid and Buffet was a bad word!

    Time even carried an article titled “Jail The Beardstown Ladies”.

  9. Nice article! These ladies remind me of Warren Buffett and the old school approach to investing. No matter how many computer models claim that their system is unbeatable, I think the best way will always be to look into the company, observe their operations, and get to know the management.

  10. Nice trip to the not-so-wayback machine. I remember the Ladies, it was just an honest mistake. I started paying very close attention to our investments in early 2009. I track our annualized returns on a simple spreadsheet.

  11. I read both of their books (including the 2nd one, “Stitch In Time”). Yeah the math was bad, but the concept was great! I wish I didn’t work where I worked at, I’d love to form an investing club!

    I use to know my return, but once the market crashed I stopped (too depressing)…

  12. That’s a phenomenal return and story. It’s just so inspiring when people buck the trend and do something significant, often in spite of things that most people would count as limitations (lack of professional training, age, etc.) Thanks for sharing!!!!

  13. I don’t know man I need some help here. Their reported results were approximately 5% per year or 2% per year below the market depending on which time frame you’re looking at. Actually 5% below the index is what the typical investor does according to the Dalbar data. For those who think that’s good performance you will truly be amazed at low cost index fund investing.
    I agree that every investor should know their time-weighted-return and look forward to your future post.

  14. Count me in as one of those who isn’t confident that I’ve calculated my returns correctly. I wish there were an easy way to figure it out!

  15. By the way, this was a wonderfully written post–both entertaining and enlightening. I just realized I immediately included it in our round-up, but hadn’t taken a moment to comment on it. I really did like this post. :)

  16. @LifeAndMyFinances: Very true! Bill Gates, who is a very good friend of Buffet, wanted him to invest in Microsoft. Buffet refused. Buffet doesn’t understand computers as well as Coca Cola and he said no to one of the largest company in the world!

    These women’s investment strategies were similar but on a smaller scale.

    @101: Good for you!

    @MR: If you still have the book, I’d love to read a review

    @Roshawn: Glad you liked it!

    @DIY: Low cost index funds with good asset mix and regular rebalancing works wonders. All you need is some patience!

    @Jackie: An idea for your next iPhone app!

    @Jessica: No problem! Thanks for the link love and glad you liked it!

  17. The Beardstown Ladies certain had honorable intentions and didn’t intend to mislead anyone. They just weren’t very good at math. However, the publisher is the one at fault and should have verified their claims prior to accepting the book for publication. Shame on them. There’s plenty of software out now that will accurately calculate your annualized performance.

    Life so many of the pro money managers, the Beardstown Ladies didn’t beat the indexes over a prolonged period of time.

  18. @Biz of Life: Agree, the publisher should’ve verified before making that claim – on the cover that too!

    And this wasn’t some unknown publisher who was new to the publishing business. This was Hyperion, a Disney company!

  19. Part of the problem is that people want desperately to believe. After all what could be better than nice old ladies kicking Wall Street’s butt?

  20. I have used the internal rate of return function on the Excel spreadsheet to calculate my return. It took a while for me to figure out how to input the formula properly, but now that I have it, it works like a charm. Recently, my brokerage has started doing this for my retirement accounts so it is nice to have it already done. It is quite convenient and matches my calculations as well.

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