The Beardstown Ladies, a 14-woman investment club whose best-selling book gained national renown with a message that individual investors could beat Wall Street, said Tuesday that the return earned on the club's investments was far lower than first touted.
In 1994, when they published the first of their five books, "The Beardstown Ladies' Common-Sense Investment Guide," the women said their average annual return between 1984 and 1993 was an astounding 23.4%, far better than the 14.9% gained by the Standard & Poor's 500 stock index and almost twice the 12.6% return of the average stock mutual fund.
The books helped spawn a burgeoning do-it-yourself stock-picking movement that appears to be picking up steam the longer the bull market runs.
But after recalculating the performance figure recently amid questions about its accuracy, the ladies on Tuesday put their return at an anemic 9.1% a year.
The ladies from Beardstown, Ill., whose average age is 70, said the error stemmed from a mistake they made while typing data into a computer program.
"We feel very badly," said Ann Brewer, a club member.
"We shared this original rate of return in good faith and are terribly sorry for the error and any confusion it may have caused," the ladies said in a statement.
Written in a folksy style--the first book included the ladies' favorite recipes--the books claim to boil down the process of choosing stocks to easy-to-follow rules. In a later book, for example, they point to the packed parking lots of successful discount retailer Wal-Mart and tell readers, "When the parking lot's full, buy the stock."
Admission of the error could damage sales of the five books already in print as well a sixth book on estate planning due out next month. A small cottage industry has sprung up around the ladies, as well as similarly themed books such as one by a 17-year-old who claimed to beat 99% of mutual funds.
The incident also suggests that the droves of individual investors who believe they can make easy money in the stock market may be easily misled by false claims and unrealistic expectations, experts say. Judging by the rousing popularity of investment clubs around the country, a large number of small investors has chosen to bypass investment professionals in favor of picking stocks themselves.
"It makes people set their expectations too high," said Shlomo Benartzi, a UCLA professor who focuses on investor psychology. "Now we see many individuals expecting the market to provide 20% or 25% annualized rates of return and that's unrealistic."
Individual investors aren't the only ones who look to well-known investors for easy reassurance. Professional investors also rely heavily on the prognostications of a handful of supposed market seers to justify their stock buying.
On Tuesday, part of the 31-point gain in the Dow Jones industrial average was attributed to bullish words from Abby Cohen, a widely followed strategist at Goldman, Sachs & Co. in New York. Cohen said the Dow will rise to 9,300 this year. She issued the statement after the blue-chip index on Monday reached the 8,700 mark she had earlier predicted.
"She's the guru, she's the one everyone looks at," Charles Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh, told Bloomberg News.
The Beardstown Ladies' claim to fame stemmed in large part from the 23.4% figure. That number put them in the top ranks of all U.S. investment clubs and was prominently touted on the front cover of their first book, which sold 800,000 copies.
The error came to light after a reporter for Chicago magazine wrote a scathing article attacking the way the ladies calculated their performance. The reporter, Shane Tritsch, noticed a disclaimer in one edition of the book that said part of their performance may have come from regular dues that the members paid. Adding dues into the equation, Tritsch wrote, dramatically overstated their actual performance.
The article served as the catalyst that eventually turned up the error. Ironically, however, the paying of dues was not at the heart of the problem.
When the ladies checked their figures, they found they hadn't included the dues in their tabulation. But they discovered they had made an error putting data into a computer program that spewed out their returns. They earned the 23.4% return in only two years--1991 and 1992.
When questions arose about the accuracy of the number, the book's publisher, Hyperion, a unit of the Walt Disney Co., had accounting firm Price Waterhouse determine the real figure.
Hyperion said it would correct the figure in future editions of Beardstown Ladies books and would ship "correction slips" to bookstores around the country to be inserted into the books already on the shelves.
Despite the mistake, Brewer said she and other club members stand behind the books' message about the importance of learning about the market, doing research and sticking to basic investment principles.
"Only the return was a mistake and we're very sorry for that," she said. "But we'll stand by the book on anything else."
The mistake hasn't shaken the faith of at least one fan of the Beardstown Ladies.
Cyndy Huff, a Glendale resident and professional tax preparer, started a club with nine other women two years ago after being encouraged by the success of the Beardstown Ladies.
"It's not going to make a difference with our club's philosophy," she said. "A lot of people who start clubs based on the Beardstown Ladies do so because of their emphasis on learning and education."
There are now almost 36,000 investment clubs in the country, up from less than 9,000 in 1992.
Times staff writers Karen Kaplan and Tom Petruno contributed to this story.