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