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Did Beardstown Blunder?
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February 27, 1998: 8:31 p.m. ET
Did ladies' investment club really beat the stock market? An audit may tell
From Correspondent Terry Keenan
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NEW YORK(CNNfn) - A stock market controversy erupted Friday in one of the last places you'd expect -- the small Illinois town of Beardstown. The Beardstown Ladies Investment Club is a group of gray-haired women who put the town on the map, applying common sense investment advice that produced uncommon returns -- more than 23 percent a year on average from 1984 through 1993.
The question is, did the Beardstown Ladies, who have grown very famous and wealthy, really beat the stock market after all?
With three books to their name, the Beardstown Ladies have become a fixture on the lecture circuit, riding a bull market in homespun advice.
But their best advice may have been "read the fine print." On the inside of the paperback version of the ladies' Common Sense Investment Guide is a disclaimer reading: "This 'return' may be different from the return that might be calculated for a mutual fund or bank."
In other words, the Beardstown ladies may have been including their $4,800 in annual dues, or the interest from them, when calculating their impressive investment returns.
"The very simple analogy would be if you had $100 in the bank and you put in another $100 and look at the results at the end of the year and you got nothing but 5 percent return, well low and behold you've got $10 on the $200, not $10 on the $100 that you started with," said Mark Klee, of the John Hancock Global Technology Fund.
That difference could be significant. Morningstar crunched the numbers and says this "creative accounting" could have goosed average returns into the stellar 23 percent range.
"It's tough to say what the actual return was for the portfolio," said John Raker, senior research analyst for Morningstar. "But I can say with relative confidence that the average dollar return was somewhere around 9 percent, my feeling that the return for the portfolio itself was somewhat higher, somewhere in the low teens."
That would take the gray-haired gurus out of the leagues of investment legends such as Warren Buffet and Peter Lynch, and put them in the ranks of mere mortals. The S&P 500, the standard benchmark, was up 14 percent over the same time period.
The disclaimer was brought to light in this month's issue of Chicago Magazine, setting off a series of disclaimers of the disclaimer by some of the ladies and their publisher, Hyperion.
But now the ladies and their advisers say they will go back to their books.
Beardstown member Shirley Gross told CNN financial news, "it's on my desk, and I have read it, but we have no comment until we have talked to a CPA auditor. So there will be no comment and no interviews and you are wasting your time to call any of us."
Their publisher adds any mistake was an honest one.
In retrospect, experts say the outperformance of the Beardstown Ladies, despite their focus on big household names and low-risk stocks, should have raised eyebrows with their out-sized returns. 
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