Sorry, but You’ll Have to Eat the Beardstown Book


One of the puzzling aspects of this month’s Beardstown Ladies fiasco has been how easily Walt Disney Co. and its publishing unit, Hyperion, have gotten off the hook.

The two leveraged the elderly Illinois investment club into a cottage industry, reaping the financial and PR rewards that came with selling quaint bestsellers about a bunch of Grandma Buffetts from rural Illinois.

A little more than a year ago, the release of a Beardstown investment book was touted in Disney’s annual report as a highlight of 1996. There’s even a Disney movie deal currently in development through producer DIC Films touted as “a film about an unlikely group of female financial wizards from Illinois.” Meanwhile, Hyperion has cranked out investment guide after investment guide from the ladies: five since 1994, including one with a publication date of this week.


Only trouble is that the linchpin of Beardstown Inc. and its slick marketing machine is a bogus story. The ladies weren’t as good at investing as Hyperion and Disney hyped them to be.

Rather than deal with such an embarrassing U-turn with honor, as if something important like credibility was at stake, the reaction from Disney and Hyperion has been lukewarm at best, the kind of cautious, carefully worded response clearly aimed at waiting things out until the heat dies down.

Misleading the public, even if unintentional, doesn’t seem to require much more of a reaction than that. God forbid anyone should offer, as an act of good faith, a refund to those who feel they were duped for having swallowed the Beardstown myth and spent $19.95 for a book by experts who weren’t as good as advertised.

The revelation has all but nuked Hyperion’s critical marketing hook: that these folksy, recipe-generating ladies beat the pants off all of those overpaid, Ivy League-educated professionals using simple common-sense investing, turning in a spectacular 23.4% annual return in the 10 years from 1984-1993. The best part was that they would share their recipes--about both food and investments--with the rest of us, courtesy of Hyperion.

The book jacket showed the ladies holding wads of cash along with the subtitle: “How We Beat the Stock Market--and How You Can, Too.” Also on the cover: the words “23.4% Annual Return” in big black letters in case there were any skeptics.

On the back of the book jacket were pictures of members telling us all the ways they spent their new-found loot. Margaret Houchins made a down payment on a greenhouse for her business. Maxine Thomas traveled to Egypt, Israel, Europe, the Caribbean, Australia and New Zealand. That 23.4% can go a long way.

It’s a great story. It might even be a great movie. “Cocoon” meets “Wall Street.”

Oops. Turns out that return for the ladies was only a mediocre 9.1% in the 10 years from 1984 to 1993 (15.3% from 1984 through this year.) That information comes thanks to a Price Waterhouse audit, performed because a lot of questions were being raised about the Beardstown claims. Not only didn’t the ladies beat the pants off Wall Street, they didn’t beat the pants off the Standard & Poor’s 500 or most anyone else for that matter.

So there goes in one fell swoop the entire reason to buy these books instead of the 50,000 or so other personal finance books out there. The importance of the Beardstown Ladies myth--er, story--in its success can’t be overstated.

As Fortune writer John Rothchild, who was rebuffed in 1996 when he dared question the group’s results, correctly put it:

“Had those ladies chosen not to mention their results at the outset, they would never have gotten a book contract. Who would shell out $19.95 for investment advice stuck between recipes for ham loaf and sour cream noodle bake, written by 16 people who admit to eating that stuff but who never claimed they could beat the market?”

In revealing their true rate of return, the ladies blamed a “computer input error” and said they were sorry for “the error and any confusion it may have caused.”

Betty Sinnock, the group’s longtime treasurer and spokeswoman, said the ladies are “‘distressed that there could have been any inaccuracies in our financial figures” but added that, as a guide to investing, “our books still stand.”

From Hyperion comes a brief statement saying that it will correct future editions, send “correction slips” to booksellers, and that it knows “how badly” the ladies feel about the mistake. No mention of whether anyone at Hyperion feels badly for failing to ask the right questions--like “Where’s the proof?”--before throwing the full weight of a Walt Disney unit behind the marketing blitz.

Obviously, no one feels bad enough to offer a refund, recall all of the books out there touting the bogus rate of return on the cover or require Internet booksellers to make clear that the 23.4% return never really happened.

While these cooks may not have intentionally cooked their books, it’s hard to feel a great deal of sympathy for a group with a history of stonewalling anyone who dared question their results. When Chicago magazine started raising harsh questions this year, it was the press that was criticized.

When Fortune’s Rothchild back in 1996 tried to question the results, the group refused to open its books.

Wrote Rothchild: “Ms. Sinnock flatly denies that the ladies played games with the numbers or that they are covering up a sagging rate of return. In fact, she insists the whole purpose of their vow of silence is to hide how well they’ve done. The way this story goes, the club enjoyed a terrific 1995 and a pretty good 1996 to date, but the members aren’t bragging because they don’t want to make other clubs jealous.”

The reality is that Beardstown Inc. will be dead soon, if it isn’t already. Whatever movie was in development has as good a chance of getting made as a sequel to “The Postman.” Still, the next investment guide is officially out in a few days, coming, appropriately, during the week of April Fool’s.

The honorable thing for Disney, Hyperion and even the Beardstown Ladies to do would be to pull the plug now. In the grand scheme of things, the Beardstown Ladies is a microscopic part of the Disney empire.

But killing a cottage industry isn’t easy. And, it appears, neither is taking the Hype out of Hyperion.